Organizing transit in small urban and rural communities

The justification of government support of rural transit on the basis of the presence of increasing returns to scale and the most efficient regional organization of transit is investigated. Returns to density, size, and scope at most levels of output were found. Cost subadditivity, where a monopoly firm can provide service at a lower cost than two firms, was found for many, but not all observations. The presence of natural monopoly in rural transit in a strict sense is rejected. The finding and implications are directly applicable to rural transit in North Dakota and should be helpful in informing future federal policy as well as rural transit policy, service design, and operation in other states.