Technology and incentive regulation in the Italian motorways industry
The Italian highway industry has undergone an institutional and regulatory reform through the last decade, characterised by changes in ownership and a new price cap framework. To assess the effect of the reforms on firms’ performance, we use information on all the 20 Italian concessionaires over the 1992-2003 period and 1) estimate the technical progress in the industry, thereby providing a reference value for the X factor in the price cap formula; 2) assess the relative productivity of private vs. public concessionaires; 3) evaluate whether price cap regulation has induced firms to use resources efficiently, 4) determine the possible effect of the inclusion of the quality index in the price cap formula. We find that the introduction of a price cap regime does not increase firms’ productivity whereas a sharp increase in maintenance costs is recorded, arguably due to the quality indicator in the price cap formula. Furthermore, firms appear to have gained from the privatisation process and from a technical progress occurred in the period. We also find high density economies and a steady and large increase in traffic. Overall, these results suggest that the X factor has been set too conservatively in past years which in turn explains the high profits recorded by franchisees under price cap regulation.
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Volume (Year): 35 (2009)
Issue (Month): 2 (April)
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