Contract renewal as an incentive device. An application to the French urban public transport sector
AbstractIn the French urban public transport industry, services are often delegated to a private firm by the mean of a fixed-term regulatory contract. This contract specifies the duties of the firm and a financial compensation. When it expires, a new contract is awarded, possibly to a different operator. Cost-plus and fixed-price (gross cost or net cost) contracts are commonly used to regulate the operators in the transport industry. In this paper, we analyse the incentives for the operator to reduce its cost. These incentives come from both the profit maximization during the current contract and the perspective of contract renewal. In our model, the amount of cost-reducing effort depends on the contract type and the time remaining till contract expiration. We use a sample of 124 French urban public transport networks covering the period 1995-2002 to test our predictions. Our proxy for the cost reducing effort is technical efficiency. The data largely confirm the importance of contract type on performances and the incentive effect of contract renewal.
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Bibliographic InfoPaper provided by Université catholique de Louvain, Center for Operations Research and Econometrics (CORE) in its series CORE Discussion Papers with number 2008068.
Date of creation: 01 Dec 2008
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incentive regulation; urban transport; stochastic frontier analysis.;
Other versions of this item:
- Axel Gautier & Anne Yvrande-Billon, 2013. "Contract Renewal as an Incentive Device. An Application to the French Urban Public Transport Sector," Review of Economics and Institutions, Università di Perugia, vol. 4(1).
- Axel Gautier & Anne Yvrande-Billon, 2008. "Contract Renewal as an Incentive Device. An Application to the French Urban Public Transport Sector," CREPP Working Papers 0805, Centre de Recherche en Economie Publique et de la Population (CREPP) (Research Center on Public and Population Economics) HEC-Management School, University of Liège.
- L33 - Industrial Organization - - Nonprofit Organizations and Public Enterprise - - - Comparison of Public and Private Enterprise and Nonprofit Institutions; Privatization; Contracting Out
- L51 - Industrial Organization - - Regulation and Industrial Policy - - - Economics of Regulation
- L92 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - Railroads and Other Surface Transportation
This paper has been announced in the following NEP Reports:
- NEP-ALL-2009-04-05 (All new papers)
- NEP-CTA-2009-04-05 (Contract Theory & Applications)
- NEP-URE-2009-04-05 (Urban & Real Estate Economics)
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