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Incentive Regulatory Policies: The Case of Public Transit Systems in France

  • Gagnepain, Philippe
  • Ivaldi, Marc

We assess the empirical relevance of the new theory of regulation, using a principal-agent framework to study the regulatory schemes used in the French urban transport industry. Taking the current regulatory schemes as given, the model of supply and demand provides estimates for the firms' inefficiency, the effort of managers, and the cost of public funds. It allows us to derive the first-best and second-best regulatory policies for each network and compare them with the actual situation in terms of welfare loss or gain. Fixed-price policies lie between fully informed and uninformed second-best schemes. Cost-plus contracts are dominated by any type of second-best contract. From these results, we may conjecture that fixed-price contracts call for better-informed regulators.

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Paper provided by Institut d'Économie Industrielle (IDEI), Toulouse in its series IDEI Working Papers with number 84.

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Date of creation: 1999
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Publication status: Published in The RAND Journal of Economics, vol.�33, n°4, Winter 2002, p.�605-629.
Handle: RePEc:ide:wpaper:690
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  1. 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.
  2. Laffont, Jean-Jacques, 1996. "Industrial policy and politics," International Journal of Industrial Organization, Elsevier, vol. 14(1), pages 1-27.
  3. Philippe Gagnepain & Marc Ivaldi, 2002. "Stochastic Frontiers and Asymmetric Information Models," Journal of Productivity Analysis, Springer, vol. 18(2), pages 145-159, September.
  4. 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.
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  6. Dag Morten Dalen & Andres Gomez Lobo, 1996. "Regulation and incentive contracts: An empirical investigation of the Norwegian bus transport industry," IFS Working Papers W96/08, Institute for Fiscal Studies.
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  9. B. Caillaud & R. Guesnerie & P. Rey & J. Tirole, 1988. "Government Intervention in Production and Incentives Theory: A Review of Recent Contributions," RAND Journal of Economics, The RAND Corporation, vol. 19(1), pages 1-26, Spring.
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  11. 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.
  12. Tracy R. Lewis & David E.M. Sappington, 1989. "Regulatory Options and Price-Cap Regulation," RAND Journal of Economics, The RAND Corporation, vol. 20(3), pages 405-416, Autumn.
  13. Cornwell, Christopher & Schmidt, Peter & Sickles, Robin C., 1990. "Production frontiers with cross-sectional and time-series variation in efficiency levels," Journal of Econometrics, Elsevier, vol. 46(1-2), pages 185-200.
  14. Magnus, Jan R., 1982. "Multivariate error components analysis of linear and nonlinear regression models by maximum likelihood," Journal of Econometrics, Elsevier, vol. 19(2-3), pages 239-285, August.
  15. Jondrow, James & Knox Lovell, C. A. & Materov, Ivan S. & Schmidt, Peter, 1982. "On the estimation of technical inefficiency in the stochastic frontier production function model," Journal of Econometrics, Elsevier, vol. 19(2-3), pages 233-238, August.
  16. Cornwell, C. & Schmidt, P., 1993. "Production Frontiers and Efficiency Measurement," Papers 427e, Georgia - College of Business Administration, Department of Economics.
  17. 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.
  18. Frank A. WOLAK, 1994. "An Econometric Analysis of the Asymmetric Information, Regulator-Utility Interaction," Annales d'Economie et de Statistique, ENSAE, issue 34, pages 13-69.
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