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Contract renewal as an incentive device. An application to the French urban public transport sector

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  • GAUTIER, Axel

    (Université catholique de Louvain (UCL). Center for Operations Research and Econometrics (CORE))

  • YVRANDE-BILLON, Anne

Abstract

In 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 Info

Paper provided by Université catholique de Louvain, Center for Operations Research and Econometrics (CORE) in its series CORE Discussion Papers with number 2008068.

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Date of creation: 01 Dec 2008
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Handle: RePEc:cor:louvco:2008068

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Keywords: incentive regulation; urban transport; stochastic frontier analysis.;

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References

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  1. Anne Yvrande-Billon, 2006. "The Attribution Process Of Delegation Contracts In The French Urban Public Transport Sector: Why Competitive Tendering Is A Myth," Annals of Public and Cooperative Economics, Wiley Blackwell, vol. 77(4), pages 453-478, December.
  2. Bajari, Patrick & Tadelis, Steven, 2001. "Incentives versus Transaction Costs: A Theory of Procurement Contracts," RAND Journal of Economics, The RAND Corporation, vol. 32(3), pages 387-407, Autumn.
  3. Gagnepain, P. & Ivaldi, M., 1999. "Incentive Regulatory Policies: the Case of Public Transit Systems in France," Papers 99.515, Toulouse - GREMAQ.
  4. DE BORGER, Bruno & KERSTENS, Kristiaan & COSTA, Álvaro, . "Public transit performance: What do we learn from frontier studies?," Working Papers 2000019, University of Antwerp, Faculty of Applied Economics.
  5. Kerstens, K., 1996. "Technical efficiency measurement and explanation of French urban transit companies," Transportation Research Part A: Policy and Practice, Elsevier, vol. 30(6), pages 431-452, November.
  6. William Roy & Anne Yvrande-Billon, 2007. "Ownership, Contractual Practices and Technical Efficiency: The Case of Urban Public Transport in France," Journal of Transport Economics and Policy, London School of Economics and University of Bath, vol. 41(2), pages 257-282, May.
  7. Luis R. Murillo-Zamorano, 2004. "Economic Efficiency and Frontier Techniques," Journal of Economic Surveys, Wiley Blackwell, vol. 18(1), pages 33-77, 02.
  8. Philippe Gagnepain, 1998. "Structures productives de l'industrie du transport urbain et effets des schémas réglementaires," Post-Print hal-00622819, HAL.
  9. Dalen, Dag Morten & Moen, Espen R & Riis, Christian, 2004. "Contract Renewal and Incentives in Public Procurement," CEPR Discussion Papers 4540, C.E.P.R. Discussion Papers.
  10. Jean Tirole & Jean-Jaques Laffont, 1985. "Using Cost Observation to Regulate Firms," Working papers 368, Massachusetts Institute of Technology (MIT), Department of Economics.
  11. Beniamina Buzzo Margari & Fabrizio Erbetta & Carmelo Petraglia & Massimiliano Piacenza, 2006. "Regulatory and Environmental Effects on Public Transit Efficiency. A Mixed DEA-SFA Approach," CERIS Working Paper 200613, Institute for Economic Research on Firms and Growth - Moncalieri (TO).
  12. Dag Dalen & Andres Gómez-Lobo, 2003. "Yardsticks on the road: Regulatory contracts and cost efficiency in the Norwegian bus industry," Transportation, Springer, vol. 30(4), pages 371-386, November.
  13. Amaral, Miguel & Saussier, Stéphane & Yvrande-Billon, Anne, 2009. "Auction procedures and competition in public services: The case of urban public transport in France and London," Utilities Policy, Elsevier, vol. 17(2), pages 166-175, June.
  14. Battese, G E & Coelli, T J, 1995. "A Model for Technical Inefficiency Effects in a Stochastic Frontier Production Function for Panel Data," Empirical Economics, Springer, vol. 20(2), pages 325-32.
  15. Massimiliano Piacenza, 2006. "Regulatory Contracts and Cost Efficiency: Stochastic Frontier Evidence from the Italian Local Public Transport," Journal of Productivity Analysis, Springer, vol. 25(3), pages 257-277, 06.
  16. Cécile Aubert & Arnaud Reynaud, 2005. "The Impact of Regulation on Cost Efficiency: An Empirical Analysis of Wisconsin Water Utilities," Journal of Productivity Analysis, Springer, vol. 23(3), pages 383-409, 07.
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Cited by:
  1. Andrea Boitani & Marcella Nicolini & Carlo Scarpa, 2013. "Do competition and ownership matter? Evidence from local public transport in Europe," Applied Economics, Taylor & Francis Journals, vol. 45(11), pages 1419-1434, April.

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