Contract Renewal as an Incentive Device. An Application to the French Urban Public Transport Sector

Abstract

In the French urban public transport industry, operations are often delegated and periodicallyput out for tender. Thus, operators’ incentives to reduce costs come from both profitmaximization during the current contract and from the perspective of contract renewal. Weconstruct a dynamic incentive regulation model that captures these features and we show thatboth the level of cost-reducing effort and its repartition during the contracting period dependon the contract type (cost-plus, gross cost or net cost contract). We then estimate a costfrontier model for an eight-year panel of French bus companies (664 company-yearobservations) to test our predictions

Assessing standard costs in local public bus transport: Evidence from Italy

“…Another branch of the literature related to the present paper focuses on the impact of alternative contract schemes within one country, such as, for instance, Norway (Dalen and Gomez-Lobo, 1996;, France (Kerstens, 1996;Gnagnepain and Ivaldi, 2002;Roy and Yvrande-Billon, 2007;Gautier and Yvrande-Billon, 2013), Italy (Piacenza, 2006;Buzzo Margari et al, 2007). These studies confirm that firms operating under high-powered incentive schemes, such as fixed-price contracts, are more efficient than firms operating under low-powered incentive schemes, such as cost-plus contracts.…”

Governance and regulation of urban bus transportation: Using partial privatization to achieve the better of two worlds

“…Therefore, the type of contract determines the incentives of the firms. For example, if the subsidies are not dependent on revenues, it will not be in their interest to attract customers (Gautier & Yvrande‐Billon 2011).…”

Efficient Public‐private Capital Structures

“…Cruz and Marques () discuss the practicalities of governance of mixed ownership structures and, on the basis of in‐depth cross‐sector case studies, argue that mixed companies lead to poor welfare outcomes due to complex whole life‐cycle management. Gautier and Yvrande‐Billon () present regulation type (cost‐plus vs. fixed price) and ownership structure (private vs. mixed) efficiency outcomes in French urban public transportation and show that a mixed firm regulated by a cost‐plus contract is the least efficient modality.…”

“…Cruz and Marques () present empirical evidence on mixed companies from Portugal and discuss the hindrances to achieve internal regulation and relational agreement along the life‐cycle. Gautier and Yvrande‐Billon () observe that, although mixed companies have a higher probability of contract renewal, they present the least efficient outcome.…”