Joanna Piechucka

University / Organisation : Paris School of Economics-Université Paris 1

Paper or project ? paper

Title : Regulatory contracts and cost efficiency: the French urban public transport case

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Abstract : The goal of this paper is to study the impact of different regulatory contracts on the operating costs of the urban public transport industry in France throughout the years 1995-2010. In particular, regulatory choices are considered to be endogenously determined choices explained by an unsophisticated regulator. The paper leans on a positive analysis to study the determinants of regulatory contract choices, which in turn impact the costs of operating urban public transport. The results show that given similar network characteristics, networks operated under fixed-price contracts exert lower costs than those regulated under cost-plus contracts. This finding is in line with the theoretical prediction of new regulatory economics, that fixed-price contracts provide more incentives for efficiency. In addition, several elements advocated by the private-interest theory appear to be relevant in the industry. Our findings provide useful policy implications by suggesting that significant reductions of costs can be obtained by switching to mechanisms with high-powered incentive schemes. Moreover, they highlight the importance of accounting for the endogeneity of regulatory contract choice. Ignoring this aspect could lead to undervaluing the importance of regulatory incentives for the transport operator.