Furthermore, as Niiro (2009) clarified, this transfer was excessive
for some local authorities if handed down with the intention of
compensating for the loss of the original discount fare for senior
citizens. Unlike in European countries, the Japanese local bus sector
has no system of providing PSO (Public Service Obligation).
Therefore, the loss incurred in operating on unprofitable routes is
recorded as deficit. In this sense, we can consider that the transfer
exceeding the fare rebate functions as a PSO.
However, in the event that no clear criteria exist for this provision,
these fare rebates could lead to inefficiency in the operators as
a subsidy for compensating the deficits of operations, or it could be
utilised to preserve the high-input factor price, especially with
regard to labour cost. In fact, some previous studies, such as Tanabe
(2003) and Niiro (2009) provided empirical evidence that a part of
this policy fare-discount compensation, namely, the concessionary
fare measure, is used to compensate operational deficits.
Indeed, according to these studies, many local governments
determined the compensation amount without determining the
actual decrease in revenues due to policy fare discounts (which, in
many cases, involved free travel). In fact, the transfer of concessionary
fare had not been fully linked to the actual number of users of the fare
discount. For some operators, the amount of subsidisation significantly
exceeds the required amount, and it is a fact that no clear
transfer standard was evident. Therefore, hereinafter in this study,
we treat this fare rebate as a subsidy called ‘concession subsidy’.