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Economic Efficiency and Political Capture in Public Service Contracts

Author

Listed:
  • Philippe Gagnepain

    (PJSE - Paris Jourdan Sciences Economiques - UP1 - Université Paris 1 Panthéon-Sorbonne - ENS-PSL - École normale supérieure - Paris - PSL - Université Paris Sciences et Lettres - INRA - Institut National de la Recherche Agronomique - EHESS - École des hautes études en sciences sociales - ENPC - École des Ponts ParisTech - CNRS - Centre National de la Recherche Scientifique, PSE - Paris School of Economics - UP1 - Université Paris 1 Panthéon-Sorbonne - ENS-PSL - École normale supérieure - Paris - PSL - Université Paris Sciences et Lettres - EHESS - École des hautes études en sciences sociales - ENPC - École des Ponts ParisTech - CNRS - Centre National de la Recherche Scientifique - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement)

  • Marc Ivaldi

    (TSE-R - Toulouse School of Economics - UT Capitole - Université Toulouse Capitole - UT - Université de Toulouse - INRA - Institut National de la Recherche Agronomique - EHESS - École des hautes études en sciences sociales - CNRS - Centre National de la Recherche Scientifique)

Abstract

We consider contracts for public transport services between a public authority and a transport operator. We build a structural endogenous switching model where the contract choice results from the combined effects of the incentivization scheme aimed at monitoring the operator's efficiency and the political agenda followed by the regulator to account for the voice of private interests. Our results support theoretical predictions as they suggest that cost-plus contracts entail a higher cost for society than fixed-price contracts but allow the public authority to leave a rent to a subset of individuals. Accounting for transfers to interest groups in welfare computations reduces the welfare gap between cost-plus and fixed-price regimes.

Suggested Citation

  • Philippe Gagnepain & Marc Ivaldi, 2017. "Economic Efficiency and Political Capture in Public Service Contracts," Post-Print halshs-01524894, HAL.
    • Handle: RePEc:hal:journl:halshs-01524894
    DOI: 10.1111/joie.12118
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    References listed on IDEAS

    as
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    Cited by:

    1. Hörcher, Daniel & Tirachini, Alejandro, 2021. "A review of public transport economics," Economics of Transportation, Elsevier, vol. 25(C).
    2. Aguiar, Luis & Gagnepain, Philippe, 2022. "Absorptive capacity, knowledge spillovers and incentive contracts," International Journal of Industrial Organization, Elsevier, vol. 82(C).
    3. Joanna Piechucka, 2021. "Cost efficiency and endogenous regulatory choices: evidence from the transport industry in France," Journal of Regulatory Economics, Springer, vol. 59(1), pages 25-46, February.
    4. Joanna Piechucka, 2020. "Cost Efficiency and Endogenous Regulatory Choices: Evidence from the Transport Industry in France," Discussion Papers of DIW Berlin 1851, DIW Berlin, German Institute for Economic Research.
    5. Ariane Charpin & Joanna Piechucka, 2020. "Merger Efficiency Gains: Evidence from a Large Transport Merger in France," Discussion Papers of DIW Berlin 1843, DIW Berlin, German Institute for Economic Research.
    6. Levent Kutlu & Shasha Liu & Robin C. Sickles, 2022. "Cost, Revenue, and Profit Function Estimates," Springer Books, in: Subhash C. Ray & Robert G. Chambers & Subal C. Kumbhakar (ed.), Handbook of Production Economics, chapter 16, pages 641-679, Springer.
    7. An, Yonghong & Hong, Shengjie & Zhang, Daiqiang, 2023. "A structural analysis of simple contracts," Journal of Econometrics, Elsevier, vol. 236(2).
    8. Dementiev, Andrei, 2018. "Contracting out public transport services to vertical partnerships," Research in Transportation Economics, Elsevier, vol. 69(C), pages 126-134.

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