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


7 mars 2013

Axel Gautier and Anne Yvrande-Billon, 2013. Review of Economics and Institutions, North America, 4, feb. 2013.

Abstract: 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.

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Chaire EPPP

Author: Chaire EPPP

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