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The effectiveness of the Spanish urban transport contracts in terms of incentives

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  • M. Pilar Socorro
  • Gines de Rus

Abstract

We consider a principal-agent model in which the regulator faces a moral hazard problem as he cannot observe the effort exerted by public transit operators. In this context, we analyse the effectiveness of the different urban transport contracts signed by the Spanish Central Government since 1990 in terms of incentives. The main result is that none of these contracts provides the appropriate incentives to public transit operators. Thus, we propose a fixed-quantity contract as an alternative financing mechanism. The fixed-quantity contract is a high-powered incentive contract that allows the regulator to perfectly forecast the amount of public funds to be used in the urban transport system. Moreover, the fixed-quantity contract can be adjusted to attain the equilibrium between incentives and optimal allocation of risk.

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  • M. Pilar Socorro & Gines de Rus, 2010. "The effectiveness of the Spanish urban transport contracts in terms of incentives," Applied Economics Letters, Taylor & Francis Journals, vol. 17(9), pages 913-916.
    • Handle: RePEc:taf:apeclt:v:17:y:2010:i:9:p:913-916
    DOI: 10.1080/13504850802584815
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    Cited by:

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    2. Andrea Lodi & Enrico Malaguti & Nicolás E. Stier-Moses & Tommaso Bonino, 2016. "Design and Control of Public-Service Contracts and an Application to Public Transportation Systems," Management Science, INFORMS, vol. 62(4), pages 1165-1187, April.
    3. Fu, Xiao & Wu, Youqi & Huang, Di & Wu, Jianjun, 2022. "An activity-based model for transit network design and activity location planning in a three-party game framework," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 168(C).
    4. Sheng, Dian & Meng, Qiang, 2020. "Public bus service contracting: A critical review and future research opportunities," Research in Transportation Economics, Elsevier, vol. 83(C).
    5. Sun, Yanshuo & Gong, Hengye & Guo, Qianwen & Schonfeld, Paul & Li, Zhongfei, 2020. "Regulating a public transit monopoly under asymmetric cost information," Transportation Research Part B: Methodological, Elsevier, vol. 139(C), pages 496-522.

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