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Regulatory Contracts and Cost Efficiency: Stochastic Frontier Evidence from the Italian Local Public Transport

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Author Info
Massimiliano Piacenza

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Abstract

The main objective of this paper is to investigate the way subsidization mechanisms affect the cost efficiency of public transit systems, taking into account the role played by the environmental characteristics of each network. A cost frontier model is estimated for a seven-year panel of 44 Italian transit companies run under two different regulatory schemes (cost-plus or fixed-price), using the approach proposed by Kumbhakar et al. (1991), Huang and Liu (1994) and Battese and Coelli (1995). The main evidence is that, given network characteristics, transit operators with high-powered incentive contracts (fixed-price subsidies) exhibit lower distortions from the minimum costs. Environmental conditions (network speed levels) also have a significant impact on inefficiency differentials and influence the efficacy of incentive regulation. Overall, these results highlight a scope for transport policy to increase X-efficiency. Furthermore, they stress the importance of incentive theory and modern regulatory economics for the production analysis of regulated utilities. Copyright Springer Science+Business Media, LLC 2006

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File URL: http://hdl.handle.net/10.1007/s11123-006-7643-7
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Publisher Info
Article provided by Springer in its journal Journal of Productivity Analysis.

Volume (Year): 25 (2006)
Issue (Month): 3 (06)
Pages: 257-277
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Handle: RePEc:kap:jproda:v:25:y:2006:i:3:p:257-277

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Web page: http://www.springerlink.com/link.asp?id=100296

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Related research
Keywords: Local public transport; Subsidies; Incentive regulation; Cost efficiency; Stochastic frontier; C13; C24; L51; L92; R41;

References listed on IDEAS
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  1. Dag Morten Dalen & Andres Gomez Lobo, 1996. "Regulation and incentive contracts: An empirical investigation of the Norwegian bus transport industry," IFS Working Papers W96/08, Institute for Fiscal Studies.
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  1. GAUTIER, Axel & YVRANDE-BILLON, Anne, 2008. "Contract renewal as an incentive device. An application to the French urban public transport sector," CORE Discussion Papers 2008068, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE). [Downloadable!]
  2. Beniamina Margari & Fabrizio Erbetta & Carmelo Petraglia & Massimiliano Piacenza, 2007. "Regulatory and environmental effects on public transit efficiency: a mixed DEA-SFA approach," Journal of Regulatory Economics, Springer, vol. 32(2), pages 131-151, October. [Downloadable!] (restricted)
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  3. Carlo Cambini & Massimiliano Piacenza & Davide Vannoni, 2007. "Restructuring Public Transit Systems: Evidence on Cost Properties from Medium and Large-Sized Companies," Review of Industrial Organization, Springer, vol. 31(3), pages 183-203, November. [Downloadable!] (restricted)
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