IDEAS home Printed from https://ideas.repec.org/p/cor/louvco/2008068.html
   My bibliography  Save this paper

Contract renewal as an incentive device. An application to the French urban public transport sector

Author

Listed:
  • GAUTIER, Axel

    (Université catholique de Louvain (UCL). Center for Operations Research and Econometrics (CORE))

  • YVRANDE-BILLON, Anne

Abstract

In the French urban public transport industry, services are often delegated to a private firm by the mean of a fixed-term regulatory contract. This contract specifies the duties of the firm and a financial compensation. When it expires, a new contract is awarded, possibly to a different operator. Cost-plus and fixed-price (gross cost or net cost) contracts are commonly used to regulate the operators in the transport industry. In this paper, we analyse the incentives for the operator to reduce its cost. These incentives come from both the profit maximization during the current contract and the perspective of contract renewal. In our model, the amount of cost-reducing effort depends on the contract type and the time remaining till contract expiration. We use a sample of 124 French urban public transport networks covering the period 1995-2002 to test our predictions. Our proxy for the cost reducing effort is technical efficiency. The data largely confirm the importance of contract type on performances and the incentive effect of contract renewal.

Suggested Citation

  • GAUTIER, Axel & YVRANDE-BILLON, Anne, 2008. "Contract renewal as an incentive device. An application to the French urban public transport sector," LIDAM Discussion Papers CORE 2008068, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
    • Handle: RePEc:cor:louvco:2008068
    as

    Download full text from publisher

    File URL: https://sites.uclouvain.be/core/publications/coredp/coredp2008.html
    Download Restriction: no
    ---><---

    Other versions of this item:

    References listed on IDEAS

    as
    1. Bajari, Patrick & Tadelis, Steven, 2001. "Incentives versus Transaction Costs: A Theory of Procurement Contracts," RAND Journal of Economics, The RAND Corporation, vol. 32(3), pages 387-407, Autumn.
    2. Anne Yvrande‐Billon, 2006. "The Attribution Process Of Delegation Contracts In The French Urban Public Transport Sector: Why Competitive Tendering Is A Myth," Annals of Public and Cooperative Economics, Wiley Blackwell, vol. 77(4), pages 453-478, December.
    3. 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, April.
    4. Dalen, Dag Morten & Moen, Espen R. & Riis, Christian, 2006. "Contract renewal and incentives in public procurement," International Journal of Industrial Organization, Elsevier, vol. 24(2), pages 269-285, March.
    5. Dag Dalen & Andres Gómez-Lobo, 2003. "Yardsticks on the road: Regulatory contracts and cost efficiency in the Norwegian bus industry," Transportation, Springer, vol. 30(4), pages 371-386, November.
    6. Philippe Gagnepain & Marc Ivaldi, 2002. "Incentive Regulatory Policies: The Case of Public Transit Systems in France," RAND Journal of Economics, The RAND Corporation, vol. 33(4), pages 605-629, Winter.
    7. Amaral, Miguel & Saussier, Stéphane & Yvrande-Billon, Anne, 2009. "Auction procedures and competition in public services: The case of urban public transport in France and London," Utilities Policy, Elsevier, vol. 17(2), pages 166-175, June.
    8. Anne Yvrande-Billon, 2006. "The attribution process of delegation contracts in the french urban public transport sector : why competitive tendering is a myth," Université Paris1 Panthéon-Sorbonne (Post-Print and Working Papers) halshs-00273378, HAL.
    9. Kerstens, K., 1996. "Technical efficiency measurement and explanation of French urban transit companies," Transportation Research Part A: Policy and Practice, Elsevier, vol. 30(6), pages 431-452, November.
    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 614-641, June.
    11. DE BORGER, Bruno & KERSTENS, Kristiaan & COSTA, Álvaro, "undated". "Public transit performance: What do we learn from frontier studies?," Working Papers 2000019, University of Antwerp, Faculty of Business and Economics.
    12. William Roy & Anne Yvrande-Billon, 2007. "Ownership, Contractual Practices and Technical Efficiency: The Case of Urban Public Transport in France," Université Paris1 Panthéon-Sorbonne (Post-Print and Working Papers) halshs-00107375, HAL.
    13. Luis R. Murillo‐Zamorano, 2004. "Economic Efficiency and Frontier Techniques," Journal of Economic Surveys, Wiley Blackwell, vol. 18(1), pages 33-77, February.
    14. William Roy & Anne Yvrande-Billon, 2007. "Ownership, Contractual Practices and Technical Efficiency: The Case of Urban Public Transport in France," Journal of Transport Economics and Policy, University of Bath, vol. 41(2), pages 257-282, May.
    15. Beniamina Margari & Fabrizio Erbetta & Carmelo Petraglia & Massimiliano Piacenza, 2007. "Regulatory and environmental effects on public transit efficiency: a mixed DEA-SFA approach," Journal of Regulatory Economics, Springer, vol. 32(2), pages 131-151, October.
    16. Bruno De Borger & Kristiaan Kerstens & Álvaro Costa, 2002. "Public transit performance: What does one learn from frontier studies?," Transport Reviews, Taylor & Francis Journals, vol. 22(1), pages 1-38, January.
    17. Anne Yvrande-Billon, 2006. "The attribution process of delegation contracts in the french urban public transport sector : why competitive tendering is a myth," Post-Print halshs-00273378, HAL.
    18. Philippe Gagnepain, 1998. "Structures productives de l'industrie du transport urbain et effets des schémas réglementaires," Économie et Prévision, Programme National Persée, vol. 135(4), pages 95-107.
    19. Cécile Aubert & Arnaud Reynaud, 2005. "The Impact of Regulation on Cost Efficiency: An Empirical Analysis of Wisconsin Water Utilities," Journal of Productivity Analysis, Springer, vol. 23(3), pages 383-409, July.
    20. Massimiliano Piacenza, 2006. "Regulatory Contracts and Cost Efficiency: Stochastic Frontier Evidence from the Italian Local Public Transport," Journal of Productivity Analysis, Springer, vol. 25(3), pages 257-277, June.
    21. Battese, G E & Coelli, T J, 1995. "A Model for Technical Inefficiency Effects in a Stochastic Frontier Production Function for Panel Data," Empirical Economics, Springer, vol. 20(2), pages 325-332.
    22. William Roy & Anne Yvrande-Billon, 2007. "Ownership, Contractual Practices and Technical Efficiency: The Case of Urban Public Transport in France," Post-Print halshs-00107375, HAL.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Andrea Boitani & Marcella Nicolini & Carlo Scarpa, 2013. "Do competition and ownership matter? Evidence from local public transport in Europe," Applied Economics, Taylor & Francis Journals, vol. 45(11), pages 1419-1434, April.
    2. Joanna Piechucka, 2020. "Cost Efficiency and Endogenous Regulatory Choices: Evidence from the Transport Industry in France," Discussion Papers of DIW Berlin 1851, DIW Berlin, German Institute for Economic Research.
    3. Marian MOSZORO, 2014. "Efficient Public-Private Capital Structures," Annals of Public and Cooperative Economics, Wiley Blackwell, vol. 85(1), pages 103-126, March.
    4. Freddy Huet & Simon Porcher, 2013. "Innovation and regulatory outcomes: evidence from the public-private contracts for water supply in France," Chapters, in: Mehmet Ugur (ed.), Governance, Regulation and Innovation, chapter 9, pages 216-236, Edward Elgar Publishing.
    5. Mouwen, Arnoud & van Ommeren, Jos, 2016. "The effect of contract renewal and competitive tendering on public transport costs, subsidies and ridership," Transportation Research Part A: Policy and Practice, Elsevier, vol. 87(C), pages 78-89.
    6. An, Yonghong & Hong, Shengjie & Zhang, Daiqiang, 2023. "A structural analysis of simple contracts," Journal of Econometrics, Elsevier, vol. 236(2).
    7. Zhang, Chunqin & Xiao, Guangnian & Liu, Yong & Yu, Feng, 2018. "The relationship between organizational forms and the comprehensive effectiveness for public transport services in China?," Transportation Research Part A: Policy and Practice, Elsevier, vol. 118(C), pages 783-802.
    8. Avenali, Alessandro & Boitani, Andrea & Catalano, Giuseppe & D’Alfonso, Tiziana & Matteucci, Giorgio, 2016. "Assessing standard costs in local public bus transport: Evidence from Italy," Transport Policy, Elsevier, vol. 52(C), pages 164-174.
    9. Joanna Piechucka, 2021. "Cost efficiency and endogenous regulatory choices: evidence from the transport industry in France," Journal of Regulatory Economics, Springer, vol. 59(1), pages 25-46, February.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Filippini, M. & Koller, M. & Masiero, G., 2015. "Competitive tendering versus performance-based negotiation in Swiss public transport," Transportation Research Part A: Policy and Practice, Elsevier, vol. 82(C), pages 158-168.
    2. Andrea Boitani & Marcella Nicolini & Carlo Scarpa, 2013. "Do competition and ownership matter? Evidence from local public transport in Europe," Applied Economics, Taylor & Francis Journals, vol. 45(11), pages 1419-1434, April.
    3. Amaral, Miguel, 2008. "Public vs private management of public utilities - The case of urban public transport in Europe," Research in Transportation Economics, Elsevier, vol. 22(1), pages 85-90, January.
    4. Mouwen, Arnoud & van Ommeren, Jos, 2016. "The effect of contract renewal and competitive tendering on public transport costs, subsidies and ridership," Transportation Research Part A: Policy and Practice, Elsevier, vol. 87(C), pages 78-89.
    5. Avenali, Alessandro & Boitani, Andrea & Catalano, Giuseppe & D’Alfonso, Tiziana & Matteucci, Giorgio, 2016. "Assessing standard costs in local public bus transport: Evidence from Italy," Transport Policy, Elsevier, vol. 52(C), pages 164-174.
    6. William Roy & Anne Yvrande-Billon, 2007. "Ownership, Contractual Practices and Technical Efficiency: The Case of Urban Public Transport in France," Université Paris1 Panthéon-Sorbonne (Post-Print and Working Papers) halshs-00107375, HAL.
    7. Zhang, Chunqin & Juan, Zhicai & Xiao, Guangnian, 2015. "Do contractual practices affect technical efficiency? Evidence from public transport operators in China," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 80(C), pages 39-55.
    8. Augustin, Katrin & Walter, Matthias, 2010. "Operator changes through competitive tendering: Empirical evidence from German local bus transport," Research in Transportation Economics, Elsevier, vol. 29(1), pages 36-44.
    9. Avenali, Alessandro & Boitani, Andrea & Catalano, Giuseppe & D’Alfonso, Tiziana & Matteucci, Giorgio, 2018. "Assessing standard costs in local public bus transport: A hybrid cost model," Transport Policy, Elsevier, vol. 62(C), pages 48-57.
    10. William Roy & Anne Yvrande-Billon, 2007. "Ownership, Contractual Practices and Technical Efficiency: The Case of Urban Public Transport in France," Post-Print halshs-00107375, HAL.
    11. Cambini Carlo & Filippini Massimo & Piacenza Massimiliano & Vannoni Davide, 2011. "Corporatization and Firm Performance: Evidence from Publicly-Provided Local Utilities," Review of Law & Economics, De Gruyter, vol. 7(1), pages 191-213, July.
    12. Avenali, Alessandro & Catalano, Giuseppe & D'Alfonso, Tiziana & Matteucci, Giorgio, 2020. "The allocation of national public resources in the Italian local public bus transport sector," Research in Transportation Economics, Elsevier, vol. 81(C).
    13. Luc Baumstark & Claude Ménard & William Roy & Anne Yvrande-Billon, 2005. "Modes de gestion et efficience des opérateurs dans le secteur des transports urbains de personnes," Post-Print halshs-00103116, HAL.
    14. Beniamina Margari & Fabrizio Erbetta & Carmelo Petraglia & Massimiliano Piacenza, 2007. "Regulatory and environmental effects on public transit efficiency: a mixed DEA-SFA approach," Journal of Regulatory Economics, Springer, vol. 32(2), pages 131-151, October.
    15. Rosell, Jordi, 2017. "Urban bus contractual regimes in small- and medium-sized municipalities: Competitive tendering or negotiation?," Transport Policy, Elsevier, vol. 60(C), pages 54-62.
    16. Zhang, Chunqin & Xiao, Guangnian & Liu, Yong & Yu, Feng, 2018. "The relationship between organizational forms and the comprehensive effectiveness for public transport services in China?," Transportation Research Part A: Policy and Practice, Elsevier, vol. 118(C), pages 783-802.
    17. Pestana Barros, Carlos & Peypoch, Nicolas, 2010. "Productivity changes in Portuguese bus companies," Transport Policy, Elsevier, vol. 17(5), pages 295-302, September.
    18. Guillermo Díaz & Vincent Charles, 2016. "Regulatory design and technical efficiency: public transport in France," Journal of Regulatory Economics, Springer, vol. 50(3), pages 328-350, December.
    19. de Borger, Bruno & Kerstens, Kristiaan & Staat, Matthias, 2008. "Transit costs and cost efficiency: Bootstrapping non-parametric frontiers," Research in Transportation Economics, Elsevier, vol. 23(1), pages 53-64, January.
    20. Sepúlveda, Juan Pablo & Galilea, Patricia, 2020. "How do different payment schemes to operators affect public transport concessions? A microeconomic model," Transport Policy, Elsevier, vol. 93(C), pages 27-35.

    More about this item

    Keywords

    incentive regulation; urban transport; stochastic frontier analysis.;
    All these keywords.

    JEL classification:

    • L33 - Industrial Organization - - Nonprofit Organizations and Public Enterprise - - - Comparison of Public and Private Enterprise and Nonprofit Institutions; Privatization; Contracting Out
    • L51 - Industrial Organization - - Regulation and Industrial Policy - - - Economics of Regulation
    • L92 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - Railroads and Other Surface Transportation

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:cor:louvco:2008068. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Alain GILLIS (email available below). General contact details of provider: https://edirc.repec.org/data/coreebe.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.