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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 bunding 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 design and incentives.

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Paper provided by Centre for Economic Development and Institutions(CEDI), Brunel University in its series CEDI Discussion Paper Series with number 09-04.

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Length: 25 pages
Date of creation: Feb 2009
Date of revision:
Handle: RePEc:edb:cedidp:09-04
Contact details of provider: Postal: CEDI, Brunel University,West London,UB8 3PH,United Kingdom
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  1. 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.
  2. Etienne B. Yehoue & Mona Hammami & Jean-François Ruhashyankiko, 2006. "Determinants of Public-Private Partnerships in Infrastructure," IMF Working Papers 06/99, International Monetary Fund.
  3. Cecile Aubert & Jean- Jacques Laffont, 2005. "Political renegotiation of regulatory contracts," Game Theory and Information 0506002, EconWPA.
  4. Eduardo Engel & Ronald Fischer & Alexander Galetovic, 2006. "Renegotiation Without Holdup: Anticipating Spending and Infrastructure Concessions," Working Papers 937, Economic Growth Center, Yale University.
  5. John Bennett & Elisabetta Iossa, 2004. "Building and Managing Facilities for Public Services," Public Policy Discussion Papers 02-08, Economics and Finance Section, School of Social Sciences, Brunel University.
  6. Patrick Bajari & Steven Tadelis, 1999. "Incentives versus Transaction Costs: A Theory of Procurement Contracts," Working Papers 99029, Stanford University, Department of Economics.
  7. Eduardo Engel & Ronald Fischer & Alexander Galetovic, 1998. "Least-Present-Value-of-Revenue Auctions and Highway Franchising," Documentos de Trabajo 37, Centro de Economía Aplicada, Universidad de Chile.
  8. Guasch, Jose Luis & Laffont, Jean-Jacques & Straub, Stéphane, 2005. "Concessions of Infrastructure in Latin America: Goverment-Led Renegotiation," IDEI Working Papers 372, Institut d'Économie Industrielle (IDEI), Toulouse.
  9. Matthew Ellman, 2006. "The optimal length of contracts with application to outsourcing," Economics Working Papers 965, Department of Economics and Business, Universitat Pompeu Fabra.
  10. 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.
  11. 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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