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Regulation and incentive contracts: An empirical investigation of the Norwegian bus transport industry

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  • Dag Morten Dalen
  • Andres Gomez Lobo

Abstract

In this paper we use data on the Norwegian bus transport industry to investigate the effects of different regulatory mechanisms and their economic implications. We develop a model that includes an efficiency parameter and a cost reduction effort variable, both of which enter the cost function, but which are not directly observable by the regulator. Given certain assumptions about how firms determine their cost reducing effort levels we can estimate the model. Parameter estimates can be used to design an optimal contract or other regulatory mechanisms. We use the results of our study to simulate the effects of different regulatory schemes, including the tendering of bus routes. One important finding is that an auction for a fixed price contract achieves almost the same level of welfare as the optimal auction. Therefore, the simpler fixed price contract auction seems to be the ideal regulatory mechanism in this case.

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Bibliographic Info

Paper provided by Institute for Fiscal Studies in its series IFS Working Papers with number W96/08.

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Date of creation: Aug 1996
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Handle: RePEc:ifs:ifsewp:96/08

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Cited by:
  1. Andrea Boitani & Marcella Nicolini & Carlo Scarpa, 2009. "Do Competition and Ownership Matter? Evidence from Local Public Transport in Europe," Working Papers 0911, SIET Società Italiana di Economia dei Trasporti e della Logistica.
  2. Dalen, Dag Morten & Gomez-Lobo, Andres, 1997. "Estimating cost functions in regulated industries characterized by asymmetric information," European Economic Review, Elsevier, vol. 41(3-5), pages 935-942, April.
  3. Ginés DE RUS & M. Pilar SOCORRO, 2009. "Infrastructure investment and incentives with supranational funding," Departmental Working Papers 2009-18, Department of Economics, Management and Quantitative Methods at Università degli Studi di Milano.
  4. Massimiliano Piacenza, 2002. "Regulatory Constraints and Cost Efficiency of the Italian Public Transit Systems: An Exploratory Stochastic Frontier Model," CERIS Working Paper 200202, Institute for Economic Research on Firms and Growth - Moncalieri (TO).
  5. repec:hal:journl:halshs-00103116 is not listed on IDEAS
  6. Giovanni Fraquelli & Massimiliano Piacenza & Graziano Abrate, 2001. "Costs and Technology of Public Transit Systems in Italy:Some Insights to Face Inefficiency," CERIS Working Paper 200112, Institute for Economic Research on Firms and Growth - Moncalieri (TO).
  7. Francesco, Gastaldi & Lucia, Quaglino & Carlo, Stagnaro, 2012. "Il trasporto pubblico locale e la concorrenza. Cambiare paradigma per salvare il servizio: il caso ligure
    [Local Public Transportation and Competition. Changing Paradigm to Save the Service: The Ca
    ," MPRA Paper 49464, University Library of Munich, Germany.
  8. Philippe Gagnepain & Marc Ivaldi, 2002. "Incentive Regulatory policies: The Case of Public Transit Systems in France," Post-Print hal-00622846, HAL.
  9. Massimiliano Piacenza, 2000. "The Public Transit Systems In Italy: A Critical Analysis Of The Regulatory Framework," CERIS Working Paper 200016, Institute for Economic Research on Firms and Growth - Moncalieri (TO).
  10. 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.
  11. Philippe Gagnepain, 2001. "La nouvelle théorie de la régulation des monopoles naturels : fondements et tests," Post-Print hal-00622947, HAL.

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