The estimated cost impact of privatizing student transportation in Minnesota school districts

Student transportation makes up a substantial portion of a typical school district's operating budget, and sub-contracting bus service to private firms has been advanced by some as a way to reduce transportation costs. Previous studies have found conflicting evidence regarding the cost impact of privatization. This paper seeks to improve on previous studies by estimating cost equations using data that spans six school-years. The primary result is that privatization acts to substantially increase transportation costs. Estimates using a pooled cross section predicted that going from fully outsourced to fully in house reduced costs by approximately 15.8%, while the analogous estimate using a first-differenced equation was a savings of 20.7%.