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Regulation, trust and contractual incentives around transport contracts – Is there anything bus operators can learn from public air service contracts?

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  • Merkert, Rico
  • Hensher, David A.

Abstract

This paper compares recent experiences in contract negotiation and subsequent commitment in public air services with the bus industry. The heart of the paper is a survey of European and Australian regional airlines, which we mirror with revealed experiences of bus operators. We aim to identify a number of elements in the contracting regimes that have exposed ambiguity and significant gaps in what the principal (e.g., transport department) expected, and what the agent (airline or bus operator) believed they were obliged to deliver. Ultimately airline and bus services are similar in that public authorities procure transport services that are desirable for the society but would be unprofitable without government involvement. In both sectors (theoretically fairly similar) public transport contracts are used, and those usually include obligations and performance measurements. In terms of similarities, one of the surveyed contract details that had a perceived high clarity in both industries was “payment procedures” and amongst those with rather poor clarity was also in both industries “incentives to improve performance and grow patronage”. We also show differences between regional air services and bus operations with regard to performance measurement and pre-specified obligations. Because of the strong safety culture around air services we find that regulation and trusting partnerships are even more important to aviation than to the bus sector. Because of the high level of trust but also because of simpler and more complete contracts in aviation, there is much less (re-)negotiation going on compared to the bus operations.

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  • Merkert, Rico & Hensher, David A., 2013. "Regulation, trust and contractual incentives around transport contracts – Is there anything bus operators can learn from public air service contracts?," Research in Transportation Economics, Elsevier, vol. 39(1), pages 67-78.
    • Handle: RePEc:eee:retrec:v:39:y:2013:i:1:p:67-78
    DOI: 10.1016/j.retrec.2012.05.025
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    References listed on IDEAS

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    Cited by:

    1. Wretstrand, Anders & Holmberg, Bengt & Berntman, Monica, 2014. "Safety as a key performance indicator: Creating a safety culture for enhanced passenger safety, comfort, and accessibility," Research in Transportation Economics, Elsevier, vol. 48(C), pages 109-115.
    2. Merkert, Rico & Mulley, Corinne & Hakim, Md Mahbubul, 2018. "Trade-offs between transaction cost, operation cost and innovation in the context of procurement and asset specificity – The example of the bus industry," Research in Transportation Economics, Elsevier, vol. 69(C), pages 173-179.
    3. Chao, Ching-Cheng & Chen, Hsi-Tien & Yeh, Tai-Lin, 2015. "A comprehensive relationship marketing model between airlines and travel agencies: The case of Taiwan," Journal of Air Transport Management, Elsevier, vol. 47(C), pages 20-31.
    4. Merkert, Rico & Wong, Yale Z., 2020. "Emerging business models and implications for the transport ecosystem," Research in Transportation Economics, Elsevier, vol. 83(C).
    5. Fabianski, Caroline, 2018. "Partnering for quality and performance: A standpoint for enhanced services," Research in Transportation Economics, Elsevier, vol. 69(C), pages 135-143.
    6. Hrelja, Robert & Rye, Tom & Mullen, Caroline, 2018. "Partnerships between operators and public transport authorities. Working practices in relational contracting and collaborative partnerships," Transportation Research Part A: Policy and Practice, Elsevier, vol. 116(C), pages 327-338.
    7. Epstein, Bryan & Givoni, Moshe, 2016. "Analyzing the gap between the QOS demanded by PT users and QOS supplied by service operators," Transportation Research Part A: Policy and Practice, Elsevier, vol. 94(C), pages 622-637.
    8. Canıtez, Fatih & Çelebi, Dilay, 2018. "Transaction cost economics of procurement models in public transport: An institutional perspective," Research in Transportation Economics, Elsevier, vol. 69(C), pages 116-125.
    9. Lidestam, Helene, 2014. "Sustainable bus transports through less detailed contracts," Renewable Energy, Elsevier, vol. 61(C), pages 141-146.
    10. Veeneman, Wijnand & Mulley, Corinne, 2018. "Multi-level governance in public transport: Governmental layering and its influence on public transport service solutions," Research in Transportation Economics, Elsevier, vol. 69(C), pages 430-437.
    11. Merkert, Rico & Hensher, David A., 2014. "Open access for railways and transaction cost economics – Management perspectives of Australia's rail companies," Research in Transportation Economics, Elsevier, vol. 48(C), pages 227-236.
    12. Wegelin, Philipp & von Arx, Widar, 2016. "The impact of alternative governance forms of regional public rail transport on transaction costs. Case evidence from Germany and Switzerland," Research in Transportation Economics, Elsevier, vol. 59(C), pages 133-142.

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