Working Paper: CEPR ID: DP8053
Authors: Philippe Gagnepain; Marc Ivaldi
Abstract: We consider a framework of contractual interactions between public transport authorities and transport operators. We estimate simultaneously the contract choice by the authorities and the effect of regulation on the cost-reducing activity of the operators. We test whether the current regulatory schemes are the observable items of a complex menu of contracts, as proposed by Laffont and Tirole. We suggest that the generation process of the data we have in hand is better explained by a regulatory framework where an unsophisticated regulator is politically motivated. We show how these political preferences shape the contract choice and we shed light on how operating costs are affected. On average, operators? costs are 12.1% lower under fixed-plus regimes, compared to the cost-plus cases.
Keywords: contract choice; cost reduction; incentives; public transit
JEL Codes: C51; L51
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| political considerations (D72) | choice of regulatory contracts (L14) |
| right-wing governments (P16) | fixed-price contracts (D86) |
| left-wing governments (P26) | cost-plus contracts (D86) |
| choice of regulatory contracts (L14) | cost-reduction efforts of operators (L99) |
| regulatory incentives (G18) | operating costs (D23) |