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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 1 - 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)

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    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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    Bibliographic Info

    Paper provided by HAL in its series Working Papers with number hal-00622963.

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

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    1. Patrick Bajari & Steven Tadelis, 1999. "Incentives versus Transaction Costs: A Theory of Procurement Contracts," Working Papers 99029, Stanford University, Department of Economics.
    2. Harry F. Campbell, 1975. "Deadweight Loss and Commodity Taxation in Canada," Canadian Journal of Economics, Canadian Economics Association, vol. 8(3), pages 441-47, August.
    3. Cecile Aubert & Jean- Jacques Laffont, 2005. "Political renegotiation of regulatory contracts," Game Theory and Information 0506002, EconWPA.
    4. Torsten Persson & Guido Tabellini, 2002. "Political Economics: Explaining Economic Policy," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262661314, January.
    5. Tomaso Duso & Lars-Hendrik Röller, 2001. "Towards a Political Economy of Industrial Organization: Empirical Regularities from Deregulation," CIG Working Papers FS IV 01-17, Wissenschaftszentrum Berlin (WZB), Research Unit: Competition and Innovation (CIG).
    6. Loeb, Martin & Magat, Wesley A, 1979. "A Decentralized Method for Utility Regulation," Journal of Law and Economics, University of Chicago Press, vol. 22(2), pages 399-404, October.
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