[en] Incentive regulation ; Urban public transport ; Stochastic frontier analysis ; Competition for contract ; Contract renewal
[en] In the French urban public transport industry, operations are often delegated and periodically put out for tender. Thus, operators’ incentives to reduce costs come from both profit maximization during the current contract and from the perspective of contract renewal. We construct a dynamic incentive regulation model that captures these features and we show that both the level of cost-reducing effort and its repartition during the contracting period depend on the contract type (cost-plus, gross cost or net cost contract). We then estimate a cost frontier model for an eight-year panel of French bus companies (664 company-year observations) to test our predictions.
Centre de Recherche en Économie Publique et de la Population - C.R.E.P.P