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Incentive Regulatory Policies: The Case of Public Transit Systems in France

  • Philippe Gagnepain
  • Marc Ivaldi

We assess the empirical relevance of the new theory of regulation, using a principal-agent framework to study the regulatory schemes used in the French urban transport industry. Taking the current regulatory schemes as given, the model of supply and demand provides estimates for the firms' inefficiency, the effort of managers, and the cost of public funds. It allows us to derive the first-best and second-best regulatory policies for each network and compare them with the actual situation in terms of welfare loss or gain. Fixed-price policies lie between fully informed and uninformed second-best schemes. Cost-plus contracts are dominated by any type of second-best contract. From these results, we may conjecture that fixed-price contracts call for better-informed regulators.

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Article provided by The RAND Corporation in its journal RAND Journal of Economics.

Volume (Year): 33 (2002)
Issue (Month): 4 (Winter)
Pages: 605-629

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Handle: RePEc:rje:randje:v:33:y:2002:i:winter:p:605-629
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  1. Cornwell, C. & Schmidt, P., 1993. "Production Frontiers and Efficiency Measurement," Papers 427e, Georgia - College of Business Administration, Department of Economics.
  2. Philippe Gagnepain & Marc Ivaldi, 2002. "Stochastic Frontiers and Asymmetric Information Models," Post-Print hal-00622849, HAL.
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  13. Tracy R. Lewis & David E.M. Sappington, 1989. "Regulatory Options and Price-Cap Regulation," RAND Journal of Economics, The RAND Corporation, vol. 20(3), pages 405-416, Autumn.
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  15. Jean-Jacques Laffont & Jean Tirole, 1993. "A Theory of Incentives in Procurement and Regulation," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262121743, March.
  16. Magnus, Jan R., 1982. "Multivariate error components analysis of linear and nonlinear regression models by maximum likelihood," Journal of Econometrics, Elsevier, vol. 19(2-3), pages 239-285, August.
  17. Jondrow, James & Knox Lovell, C. A. & Materov, Ivan S. & Schmidt, Peter, 1982. "On the estimation of technical inefficiency in the stochastic frontier production function model," Journal of Econometrics, Elsevier, vol. 19(2-3), pages 233-238, August.
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