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Contract choice, incentives, and political capture in public transport services

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  • Philippe Gagnepain

    ()
    (CES - Centre d'économie de la Sorbonne - CNRS : UMR8174 - Université Paris I - Panthéon-Sorbonne, EEP-PSE - Ecole d'Économie de Paris - Paris School of Economics - Ecole d'Économie de Paris)

  • Marc Ivaldi

    ()
    (TSE - Toulouse School of Economics - Toulouse School of Economics)

Abstract

We consider a framework of contractual interactions between public transport authorities and transport operators. We estimate simultaneously the contract choice by the authorities and the effect of regulation on the cost-reducing activity of the operators. We test whether the current regulatory schemes are the observable items of a complex menu of contracts, as proposed by Laffont and Tirole. We suggest that the generation process of the data we have in hand is better explained by a regulatory framework where an unsophisticated regulator is politically motivated. We show how these political preferences shape the contract choice and we shed light on how operating costs are affected. On average, operators' costs are 12.1% lower under fixed-plus regimes, compared to the cost-plus cases.

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Paper provided by HAL in its series Université Paris1 Panthéon-Sorbonne (Post-Print and Working Papers) with number hal-00622963.

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Date of creation: 2009
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Handle: RePEc:hal:cesptp:hal-00622963

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  1. Ballard, Charles L & Shoven, John B & Whalley, John, 1985. "General Equilibrium Computations of the Marginal Welfare Costs of Taxes in the United States," American Economic Review, American Economic Association, American Economic Association, vol. 75(1), pages 128-38, March.
  2. Loeb, Martin & Magat, Wesley A, 1979. "A Decentralized Method for Utility Regulation," Journal of Law and Economics, University of Chicago Press, University of Chicago Press, vol. 22(2), pages 399-404, October.
  3. Gagnepain, Philippe & Ivaldi, Marc, 1999. "Incentive Regulatory Policies: The Case of Public Transit Systems in France," IDEI Working Papers, Institut d'Économie Industrielle (IDEI), Toulouse 84, Institut d'Économie Industrielle (IDEI), Toulouse.
  4. Isabelle Brocas & Kitty Chan & Isabelle Perrigne, 2006. "Regulation under Asymmetric Information in Water Utilities," American Economic Review, American Economic Association, American Economic Association, vol. 96(2), pages 62-66, May.
  5. Laffont, Jean-Jacques, 1996. "Industrial policy and politics," International Journal of Industrial Organization, Elsevier, Elsevier, vol. 14(1), pages 1-27.
  6. Cecile Aubert & Jean- Jacques Laffont, 2005. "Political renegotiation of regulatory contracts," Game Theory and Information, EconWPA 0506002, EconWPA.
  7. Pint, Ellen M., 1991. "Nationalization vs. regulation of monopolies : The effects of ownership on efficiency," Journal of Public Economics, Elsevier, Elsevier, vol. 44(2), pages 131-164, March.
  8. Laffont, Jean-Jacques & Tirole, Jean, 1986. "Using Cost Observation to Regulate Firms," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 94(3), pages 614-41, June.
  9. Roemer, John E. & Silvestre, Joaquim, 1992. "A welfare comparison of private and public monopoly," Journal of Public Economics, Elsevier, Elsevier, vol. 48(1), pages 67-81, June.
  10. Tomaso Duso & Lars-Hendrik Röller, 2001. "Towards a Political Economy of Industrial Organization: Empirical Regularities from Deregulation," CIG Working Papers, Wissenschaftszentrum Berlin (WZB), Research Unit: Competition and Innovation (CIG) FS IV 01-17, Wissenschaftszentrum Berlin (WZB), Research Unit: Competition and Innovation (CIG).
  11. Torsten Persson & Guido Tabellini, 2002. "Political Economics: Explaining Economic Policy," MIT Press Books, The MIT Press, The MIT Press, edition 1, volume 1, number 0262661314, December.
  12. 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.
  13. Jean-Jacques Laffont & Jean Tirole, 1993. "A Theory of Incentives in Procurement and Regulation," MIT Press Books, The MIT Press, The MIT Press, edition 1, volume 1, number 0262121743, December.
  14. Harry F. Campbell, 1975. "Deadweight Loss and Commodity Taxation in Canada," Canadian Journal of Economics, Canadian Economics Association, Canadian Economics Association, vol. 8(3), pages 441-47, August.
  15. Gasmi, F & Laffont, Jean-Jacques & Sharkey, W W, 1997. "Incentive Regulation and the Cost Structure of the Local Telephone Exchange Network," Journal of Regulatory Economics, Springer, Springer, vol. 12(1), pages 5-25, July.
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Cited by:
  1. Xavier d'Haultfoeuille & Philippe Février, 2010. "Identification of a Class of Adverse Selection Models with Contracts Variation," Working Papers, Centre de Recherche en Economie et Statistique 2011-27, Centre de Recherche en Economie et Statistique.

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