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Welfare Tradeoffs in U.S. Rail Mergers

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  • Ivaldi, Marc
  • Mccullough, Gerard

Abstract

The renegotiation of regulatory contracts is known to prevent regulators from achieving the full commitment efficient outcome in dynamic contexts. However, assessing the cost of such renegotiation remains an open issue from an empirical viewpoint. To address this question, we fit a structural principal-agent model with renegotiation on a set of urban transport service contracts. The model captures two important features of the industry. First, only two types of contracts are used in practice (fixed-price and cost-plus). Second, subsidies increase over time. We compare a scenario with renegotiation and a hypothetical situation with full commitment. We conclude that the welfare gains from improving commitment would be significant but would accrue mostly to operators.

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Paper provided by Toulouse School of Economics (TSE) in its series TSE Working Papers with number 10-196.

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Date of creation: 08 Sep 2010
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Handle: RePEc:tse:wpaper:23459

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Cited by:
  1. Kristof De Witte & Elbert Dijkgraaf, 2007. "Mean and Bold?," Tinbergen Institute Discussion Papers 07-092/3, Tinbergen Institute.
  2. Friebel, Guido & McCullough, Gerard & Padilla Angulo, Laura, 2008. "Patterns of Restructuring: The U.S. Class 1 Railroads from 1984 to 2004," CEPR Discussion Papers 6836, C.E.P.R. Discussion Papers.
  3. Jerome Foncel & Marc Ivaldi & Jrisy Motis, 2008. "An Econometric Workbench for Comparing the Substantive and Dominance Tests in Horizontal Merger Analysis," Working Papers 0833, University of Crete, Department of Economics.
  4. Dennis W. Carlton & Randal C. Picker, 2013. "Antitrust and Regulation," NBER Chapters, in: Economic Regulation and Its Reform: What Have We Learned? National Bureau of Economic Research, Inc.
  5. Marc Ivaldi, 2005. "Restructuring Railways: In Theory and Practice," CESifo DICE Report, Ifo Institute for Economic Research at the University of Munich, vol. 3(4), pages 3-9, 01.
  6. Jrisy Motis, 2007. "Mergers and Acquisitions Motives," Working Papers 0730, University of Crete, Department of Economics.

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