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Towards achievement of both Allocative Efficiency and X-Efficiency in Public Transport

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  • Kjell Werner Johansen
  • Odd I. Larsen
  • Bård Norheim

Abstract

Counties are responsible for local public transport in Norway. The prevalent form of organisation is that private companies operate on net-cost contracts for the counties. The county authorities determine both the fares and the level of service. Competitive tendering is permitted and the threat of tendering has contributed to increased X-efficiency in the bus industry. The main problem at present is the lack of incentives for market, or allocative efficiency. A new type of contract has recently been introduced in Norway. It allows operators greater freedom in the design of services, and a remuneration scheme is linked to the level of service provided. It is intended that this remuneration to operators will internalise the social benefits from an improved level of service since only a small fraction of these benefits is captured by increased fare revenue. By proper design of the remuneration scheme, the level of service provided by private operators who maximise profit will approximate the social optimum. © The London School of Economics and the University of Bath 2001

Suggested Citation

  • Kjell Werner Johansen & Odd I. Larsen & Bård Norheim, 2001. "Towards achievement of both Allocative Efficiency and X-Efficiency in Public Transport," Journal of Transport Economics and Policy, University of Bath, vol. 35(3), pages 491-511, September.
    • Handle: RePEc:tpe:jtecpo:v:35:y:2001:i:3:p:491-511
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    Cited by:

    1. Feifei Qin & Xiaoning Zhang, 2015. "Designing an Optimal Subsidy Scheme to Reduce Emissions for a Competitive Urban Transport Market," Sustainability, MDPI, vol. 7(9), pages 1-16, August.
    2. Canıtez, Fatih & Çelebi, Dilay & Deveci, Muhammet & Kuvvetli, Yusuf, 2019. "Selecting an optimal contractual payment model for Istanbul's public bus operators using non-linear mathematical programming," Research in Transportation Economics, Elsevier, vol. 76(C).
    3. Rojo, Marta & dell’Olio, Luigi & Gonzalo-Orden, Hernán & Ibeas, Ángel, 2015. "Inclusion of quality criteria in public bus service contracts in metropolitan areas," Transport Policy, Elsevier, vol. 42(C), pages 52-63.
    4. Bekken, Jon-Terje & Norheim, Bård, 2007. "Chapter 7 Use of toll revenues and investment in Oslo," Research in Transportation Economics, Elsevier, vol. 19(1), pages 143-160, January.
    5. Feifei Qin & Xiaoning Zhang & Eoin Plant, 2017. "The welfare effects of nationalization in a mixed duopoly public transport market," Operational Research, Springer, vol. 17(2), pages 593-618, July.
    6. Gwilliam, Ken, 2008. "A review of issues in transit economics," Research in Transportation Economics, Elsevier, vol. 23(1), pages 4-22, January.

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