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Contract choice, incentives and political capture in public transport services

  • Philippe Gagnepain,


  • Marc Ivaldi


We consider a framework of contractual interactions between urban transport authorities and transport operators. We estimate simultaneously the choice of contract by the authorities and the effect of regulation on the cost reducing activity of the operators. We test whether regulatory schemes currently implemented in the industry are the observable items of a more general menu of second best contracts. We suggest that the generation process of the data we have in hand is better explained by the political aspects of regulation. Moreover, the cost reducing effort of the operators is greater under fixed-price regimes, compared to the cost-plus case.

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Paper provided by Universidad Carlos III, Departamento de Economía in its series Economics Working Papers with number we096641.

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Date of creation: Sep 2009
Date of revision:
Handle: RePEc:cte:werepe:we096641
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  1. Cecile Aubert & Jean- Jacques Laffont, 2005. "Political renegotiation of regulatory contracts," Game Theory and Information 0506002, EconWPA.
  2. Gasmi, F & Laffont, Jean-Jacques & Sharkey, W W, 1997. "Incentive Regulation and the Cost Structure of the Local Telephone Exchange Network," Journal of Regulatory Economics, Springer, vol. 12(1), pages 5-25, July.
  3. Tomaso Duso & Lars-Hendrik Röller, 2001. "Towards a Political Economy of Industrial Organization: Empirical Regularities from Deregulation," CIG Working Papers FS IV 01-17, Wissenschaftszentrum Berlin (WZB), Research Unit: Competition and Innovation (CIG).
  4. Laffont, Jean-Jacques, 1996. "Industrial policy and politics," International Journal of Industrial Organization, Elsevier, vol. 14(1), pages 1-27.
  5. Ballard, Charles L & Shoven, John B & Whalley, John, 1985. "General Equilibrium Computations of the Marginal Welfare Costs of Taxes in the United States," American Economic Review, American Economic Association, vol. 75(1), pages 128-38, March.
  6. Gagnepain, P. & Ivaldi, M., 1999. "Incentive Regulatory Policies: the Case of Public Transit Systems in France," Papers 99.515, Toulouse - GREMAQ.
  7. Patrick Bajari & Steven Tadelis, 1999. "Incentives versus Transaction Costs: A Theory of Procurement Contracts," Working Papers 99029, Stanford University, Department of Economics.
  8. Roemer, J.E. & Silvestre, J., 1989. "A Welfare Comparison Of Private And Public Monopoly," Papers 340, California Davis - Institute of Governmental Affairs.
  9. Torsten Persson & Guido Tabellini, 2002. "Political Economics: Explaining Economic Policy," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262661314, June.
  10. 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.
  11. Isabelle Brocas & Kitty Chan & Isabelle Perrigne, 2006. "Regulation under Asymmetric Information in Water Utilities," American Economic Review, American Economic Association, vol. 96(2), pages 62-66, May.
  12. Pint, Ellen M., 1991. "Nationalization vs. regulation of monopolies : The effects of ownership on efficiency," Journal of Public Economics, Elsevier, vol. 44(2), pages 131-164, March.
  13. Loeb, Martin & Magat, Wesley A, 1979. "A Decentralized Method for Utility Regulation," Journal of Law and Economics, University of Chicago Press, vol. 22(2), pages 399-404, October.
  14. Harry F. Campbell, 1975. "Deadweight Loss and Commodity Taxation in Canada," Canadian Journal of Economics, Canadian Economics Association, vol. 8(3), pages 441-47, August.
  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, June.
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