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The Theory of Incentives Applied to the Transport Sector

  • Elisabetta Iossa
  • David Martimort

    ()

Building upon Iossa and Martimort (2008), we study the main incentive issues and the form of optimal contracts for Public Private Partnerships (PPPs) in transports. We present a basic model of procurement in a multitask environment in which a risk-averse firm chooses unobservable efforts in infrastructure and service quality. We begin by analyzing the effect on incentives and risk transfer of bundling building and operation into a single contract. We consider the factors that affect the optimal allocation of demand risk and their implications for the choice of contract length. We discuss the dynamics of PPP contracts and how the risk of regulatory opportunism affects contract design and incentives.

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File URL: http://www.bristol.ac.uk/cmpo/publications/papers/2009/wp210.pdf
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Paper provided by Department of Economics, University of Bristol, UK in its series The Centre for Market and Public Organisation with number 09/210.

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Length: 21 pages
Date of creation: Feb 2009
Date of revision:
Handle: RePEc:bri:cmpowp:09/210
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  1. JOhn Bennett & Elisabetta Iossa, 2005. "Building and Managing Facilities for Public Services," The Centre for Market and Public Organisation 05/137, Department of Economics, University of Bristol, UK.
  2. Gagnepain, Philippe & Ivaldi, Marc & Martimort, David, 2010. "The Cost of Contract Renegotiation: Evidence from the Local Public Sector," TSE Working Papers 10-190, Toulouse School of Economics (TSE).
  3. Eduardo M. R. A. Engel & Ronald D. Fischer & Alexander Galetovic, 2001. "Least-Present-Value-of-Revenue Auctions and Highway Franchising," Journal of Political Economy, University of Chicago Press, vol. 109(5), pages 993-1020, October.
  4. Oliver Hart & Andrei Shleifer & Robert W. Vishny, 1996. "The Proper Scope of Government: Theory and an Application to Prisons," NBER Working Papers 5744, National Bureau of Economic Research, Inc.
  5. David Martimort & Flavio Menezes & Myrna Wooders & ELISABETTA IOSSA & DAVID MARTIMORT, 2015. "The Simple Microeconomics of Public-Private Partnerships," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 17(1), pages 4-48, 02.
  6. David E. M. Sappington & Joseph E. Stiglitz, 1987. "Privatization, information and incentives," Journal of Policy Analysis and Management, John Wiley & Sons, Ltd., vol. 6(4), pages 567-585.
  7. J. Luis Guasch & Jean-Jacques Laffont & Stephane Straub, 2005. "Concessions of Infrastructure in Latin America: Government-led Renegotiation," ESE Discussion Papers 132, Edinburgh School of Economics, University of Edinburgh.
  8. Patrick Bajari & Steven Tadelis, 1999. "Incentives versus Transaction Costs: A Theory of Procurement Contracts," Working Papers 99029, Stanford University, Department of Economics.
  9. Eduardo Engel & Ronald Fischer & Alexander Galetovic, 2006. "Renegotiation Without Holdup: Anticipating Spending and Infrastructure Concessions," NBER Working Papers 12399, National Bureau of Economic Research, Inc.
  10. Matthew Ellman, 2006. "The optimal length of contracts with application to outsourcing," Economics Working Papers 965, Department of Economics and Business, Universitat Pompeu Fabra.
  11. Estache, Antonio & Guasch, Jose-Luis & Iimi, Atsushi & Trujillo, Lourdes, 2008. "Multidimensionality and renegotiation : evidence from transport-sector public-private-partnership transactions in Latin America," Policy Research Working Paper Series 4665, The World Bank.
  12. David Aschauer, 1988. "Is public expenditure productive?," Staff Memoranda 88-7, Federal Reserve Bank of Chicago.
  13. Oliver Hart, 2003. "Incomplete Contracts and Public Ownership: Remarks, and an Application to Public-Private Partnerships," Economic Journal, Royal Economic Society, vol. 113(486), pages C69-C76, March.
  14. Tracy R. Lewis & David E.M. Sappington, 1995. "Optimal Capital Structure in Agency Relationships," RAND Journal of Economics, The RAND Corporation, vol. 26(3), pages 343-361, Autumn.
  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. Timothy Besley & Maitreesh Ghatak, 2001. "Government Versus Private Ownership of Public Goods," The Quarterly Journal of Economics, Oxford University Press, vol. 116(4), pages 1343-1372.
  17. David Martimort & Jérôme Pouyet, 2008. "To build or not to build: Normative and positive theories of public-private partnerships," Post-Print halshs-00754298, HAL.
  18. Jiahua Che & Yingyi Qian, 1998. "Insecure Property Rights and Government Ownership of Firms," The Quarterly Journal of Economics, Oxford University Press, vol. 113(2), pages 467-496.
  19. Jeffry M. Netter & William L. Megginson, 2001. "From State to Market: A Survey of Empirical Studies on Privatization," Journal of Economic Literature, American Economic Association, vol. 39(2), pages 321-389, June.
  20. Etienne B Yehoue & Mona Hammami & Jean-François Ruhashyankiko, 2006. "Determinants of Public-Private Partnerships in Infrastructure," IMF Working Papers 06/99, International Monetary Fund.
  21. Grout, Paul A, 1997. "The Economics of the Private Finance Initiative," Oxford Review of Economic Policy, Oxford University Press, vol. 13(4), pages 53-66, Winter.
  22. Holmstrom, Bengt & Milgrom, Paul, 1991. "Multitask Principal-Agent Analyses: Incentive Contracts, Asset Ownership, and Job Design," Journal of Law, Economics and Organization, Oxford University Press, vol. 7(0), pages 24-52, Special I.
  23. Cecile Aubert & Jean- Jacques Laffont, 2005. "Political renegotiation of regulatory contracts," Game Theory and Information 0506002, EconWPA.
  24. Kappeler, Andreas & Nemoz, Mathieu, 2010. "Public-Private Partnerships in Europe - Before and During the Recent Financial Crisis," Economic and Financial Reports 2010/4, European Investment Bank, Economics Department.
  25. Rogerson, William P, 1985. "Repeated Moral Hazard," Econometrica, Econometric Society, vol. 53(1), pages 69-76, January.
  26. Martimort, David & Pouyet, Jérôme, 2006. "'Build It or Not': Normative and Positive Theories of Public-Private Partnerships," CEPR Discussion Papers 5610, C.E.P.R. Discussion Papers.
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