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The renegotiation cost of public transport services contracts

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  • Philippe Gagnepain

    () (CES - Centre d'économie de la Sorbonne - CNRS - Centre National de la Recherche Scientifique - UP1 - Université Panthéon-Sorbonne, PSE - Paris School of Economics)

  • Marc Ivaldi

    () (TSE - Toulouse School of Economics - Toulouse School of Economics)

  • David Martimort

    (PSE - Paris School of Economics)

Abstract

The renegotiation of regulatory contracts is known to prevent regulators from achieving the full commitment efficient outcome in dynamic contexts. However, assessing the cost of such renegotiation remains an open issue from an empirical viewpoint. To address this question, we fit a structural principal-agent model with renegotiation on a set of urban transport service contracts. The model captures two important features of the industry. First, only two types of contracts are used in practice (fixed-price and cost-plus). Second, subsidies increase over time. We compare a scenario with renegotiation and a hypothetical situation with full commitment. We conclude that the welfare gains from improving commitment would be significant but would accrue mostly to operators.

Suggested Citation

  • Philippe Gagnepain & Marc Ivaldi & David Martimort, 2010. "The renegotiation cost of public transport services contracts," Université Paris1 Panthéon-Sorbonne (Post-Print and Working Papers) hal-00622961, HAL.
  • Handle: RePEc:hal:cesptp:hal-00622961
    Note: View the original document on HAL open archive server: https://hal.archives-ouvertes.fr/hal-00622961
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    References listed on IDEAS

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