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Pricing, cost recovery, and production efficiency in transport : a critique

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  • Kranton, Rachel E.

Abstract

The purpose of this paper is to assess the efficacy of optimal pricing formulas for pricing and cost recovery and to develop a general framework within which to analyze the performance of public transport. Five sources of inefficiency in public transport are discussed: (a) the goals of the enterprise or the regulation of its operations; (b) the structure of the output market; (c) the control mechanism between government and the enterprise; (c) the managerial incentive structure; and (d) the conditions of employment. Even when public enterprises are bent on maximizing consumer welfare, costs are not necessarily minimized. Lack of competition may also exacerbate the problem of asymmetric information between owners and managers. Owners of public firms are unlikely to exert pressure on public enterprises to operate efficiently. And public firms may be protected from insolvency by"soft"budget constraints.

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Bibliographic Info

Paper provided by The World Bank in its series Policy Research Working Paper Series with number 445.

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Date of creation: 30 Jun 1990
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Handle: RePEc:wbk:wbrwps:445

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Related research

Keywords: Economic Theory&Research; Environmental Economics&Policies; Banks&Banking Reform; Municipal Financial Management; Public Sector Economics&Finance;

References

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  1. Laffont, Jean-Jacques & Tirole, Jean, 1986. "Using Cost Observation to Regulate Firms," Journal of Political Economy, University of Chicago Press, vol. 94(3), pages 614-41, June.
  2. John Vickers & George Yarrow, 1988. "Privatization: An Economic Analysis," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262720116, December.
  3. Kim, Moshe & Spiegel, Menahem, 1987. "The effects of lump-sum subsidies on the structure of production and productivity in regulated industries," Journal of Public Economics, Elsevier, vol. 34(1), pages 105-119, October.
  4. Shapiro, Carl & Stiglitz, Joseph E, 1984. "Equilibrium Unemployment as a Worker Discipline Device," American Economic Review, American Economic Association, vol. 74(3), pages 433-44, June.
  5. Bos, Dieter, 1985. "Public sector pricing," Handbook of Public Economics, in: A. J. Auerbach & M. Feldstein (ed.), Handbook of Public Economics, edition 1, volume 1, chapter 3, pages 129-211 Elsevier.
  6. Bos, Dieter & Peters, Wolfgang, 1988. "Privatization, internal control, and internal regulation," Journal of Public Economics, Elsevier, vol. 36(2), pages 231-258, July.
  7. Lindauer, David L., 1988. "Government pay and employment policies and government performance in developing economies," Policy Research Working Paper Series 42, The World Bank.
  8. Yellen, Janet L, 1984. "Efficiency Wage Models of Unemployment," American Economic Review, American Economic Association, vol. 74(2), pages 200-205, May.
  9. Galenson, Alice, 1989. "Labor redundancy in the transport sector," Policy Research Working Paper Series 158, The World Bank.
  10. De Alessi, Louis, 1974. "Managerial Tenure under Private and Government Ownership in the Electric Power Industry," Journal of Political Economy, University of Chicago Press, vol. 82(3), pages 645-53, May/June.
  11. Nellis, John R., 1988. "Contract plans and public enterprise performance," Policy Research Working Paper Series 118, The World Bank.
  12. Rees, Ray, 1984. "The Public Enterprise Game," Economic Journal, Royal Economic Society, vol. 94(376a), pages 109-23, Supplemen.
  13. Heggie, Ian G. & Quick, Michael, 1990. "A framework for analyzing financial performance of the transport sector," Policy Research Working Paper Series 356, The World Bank.
  14. Baumol, William J & Bradford, David F, 1970. "Optimal Departures from Marginal Cost Pricing," American Economic Review, American Economic Association, vol. 60(3), pages 265-83, June.
  15. B. Caillaud & R. Guesnerie & P. Rey & J. Tirole, 1988. "Government Intervention in Production and Incentives Theory: A Review of Recent Contributions," RAND Journal of Economics, The RAND Corporation, vol. 19(1), pages 1-26, Spring.
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