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The Theory of Incentives Applied to the Transport Sector

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  • Elisabetta Iossa
  • David Martimort

Abstract

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.

Suggested Citation

  • Elisabetta Iossa & David Martimort, 2009. "The Theory of Incentives Applied to the Transport Sector," The Centre for Market and Public Organisation 09/210, The Centre for Market and Public Organisation, University of Bristol, UK.
    • Handle: RePEc:bri:cmpowp:09/210
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    Cited by:

    1. Hoppe, Eva I. & Kusterer, David J. & Schmitz, Patrick W., 2013. "Public–private partnerships versus traditional procurement: An experimental investigation," Journal of Economic Behavior & Organization, Elsevier, vol. 89(C), pages 145-166.
    2. 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, February.
    3. David Martimort & Flavio Menezes & Myrna Wooders & DANIEL DANAU & ANNALISA VINELLA, 2015. "Public-Private Contracting under Limited Commitment," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 17(1), pages 78-110, February.
    4. Engel, Eduardo & Fischer, Ronald & Galetovic, Alexander, 2018. "The joy of flying: Efficient airport PPP contracts," Transportation Research Part B: Methodological, Elsevier, vol. 114(C), pages 131-146.
    5. Eva I. Hoppe & Patrick W. Schmitz, 2013. "Public-private partnerships versus traditional procurement: Innovation incentives and information gathering," RAND Journal of Economics, RAND Corporation, vol. 44(1), pages 56-74, March.
    6. Baburam Rijal & Luc LeBel & Shuva H. Gautam & Pierre Cantegril, 2020. "A Sequential Optimization Approach in Tactical Planning for Value Creation in the Forest Products Industry," Sustainability, MDPI, vol. 12(12), pages 1-23, June.
    7. Martimort, David & Pommey, Guillaume & Pouyet, Jerome, 2022. "Optimal regulation design of airports: Investment incentives and impact of commercial services," Transportation Research Part B: Methodological, Elsevier, vol. 164(C), pages 25-44.
    8. Stefan Lutz & Mario Pezzino, 2014. "Vertically Differentiated Mixed Oligopoly with Quality-dependent Fixed Costs," Manchester School, University of Manchester, vol. 82(5), pages 596-619, September.
    9. Jiarui Gan & Minbiao Han & Jibang Wu & Haifeng Xu, 2022. "Optimal Coordination in Generalized Principal-Agent Problems: A Revisit and Extensions," Papers 2209.01146, arXiv.org.
    10. Hörcher, Daniel & Tirachini, Alejandro, 2021. "A review of public transport economics," Economics of Transportation, Elsevier, vol. 25(C).
    11. Silaghi, Florina & Sarkar, Sudipto, 2021. "Agency problems in public-private partnerships investment projects," European Journal of Operational Research, Elsevier, vol. 290(3), pages 1174-1191.
    12. Ram Singh, 2018. "Public–private partnerships vs. traditional contracts for highways," Indian Economic Review, Springer, vol. 53(1), pages 29-63, December.
    13. Antonio Vannucci & Maria Andreoli & Massimo Rovai, 2022. "Land Use Change and Disappearance of Hedgerows in a Tuscan Rural Landscape: A Discussion on Policy Tools to Revert This Trend," Sustainability, MDPI, vol. 14(20), pages 1-21, October.
    14. Eduardo Abi Jaber & Stéphane Villeneuve, 2022. "Gaussian Agency problems with memory and Linear Contracts," Post-Print hal-03783062, HAL.
    15. Beria, Paolo & Grimaldi, Raffaele & Albalate, Daniel & Bel, Germà, 2018. "Delusions of success: Costs and demand of high-speed rail in Italy and Spain," Transport Policy, Elsevier, vol. 68(C), pages 63-79.
    16. Huibing Cheng & Shanshui Zheng, 2022. "Incentive Compensation Mechanism for the Infrastructure Construction of Electric Vehicle Battery Swapping Station under Asymmetric Information," Sustainability, MDPI, vol. 14(12), pages 1-18, June.
    17. Yufeng Wang & Tao Wu & Mengke Huang, 2022. "China’s River Chief Policy and the Sustainable Development Goals: Prefecture-Level Evidence from the Yangtze River Economic Belt," Sustainability, MDPI, vol. 14(6), pages 1-16, March.
    18. Välilä, Timo, 2020. "An overview of economic theory and evidence of public-private partnerships in the procurement of (transport) infrastructure," Utilities Policy, Elsevier, vol. 62(C).
    19. Villeneuve, Stéphane & Abi Jaber, Eduardo, 2022. "Gaussian Agency problems with memory and Linear Contracts," TSE Working Papers 22-1363, Toulouse School of Economics (TSE).
    20. David Martimort & Flavio Menezes & Myrna Wooders & VANESSA VALERO, 2015. "Government Opportunism in Public-Private Partnerships," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 17(1), pages 111-135, February.
    21. Carlos CONTRERAS & Julio ANGULO, 2016. "How Do Credit Spreads Affect Risk Allocation In Public Ï¿½ Private Partnerships?," Journal of Public Administration, Finance and Law, Alexandru Ioan Cuza University, Faculty of Economics and Business Administration, vol. 9(9), pages 63-79, June.
    22. Eduardo Abi Jaber & Stéphane Villeneuve, 2022. "Gaussian Agency problems with memory and Linear Contracts," Working Papers hal-03783062, HAL.
    23. Yawovi Mawussé Isaac Amedanou, 2022. "Financing the economy in debt times: the crucial role of public-private partnerships," Working Papers hal-03545244, HAL.
    24. Antonio Sánchez Soliño, 2012. "Optimización de la transferencia de riesgos en los Contratos de Infraestructuras y Servicios Públicos," Hacienda Pública Española / Review of Public Economics, IEF, vol. 201(2), pages 67-91, June.
    25. Eduardo Abi Jaber & St'ephane Villeneuve, 2022. "Gaussian Agency problems with memory and Linear Contracts," Papers 2209.10878, arXiv.org.

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    More about this item

    Keywords

    Contracting out; public-private partnerships; public-service provision; transport;
    All these keywords.

    JEL classification:

    • D8 - Microeconomics - - Information, Knowledge, and Uncertainty
    • H54 - Public Economics - - National Government Expenditures and Related Policies - - - Infrastructures
    • H57 - Public Economics - - National Government Expenditures and Related Policies - - - Procurement
    • L5 - Industrial Organization - - Regulation and Industrial Policy
    • L91 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - Transportation: General

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