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Regulation and incentive contracts: An empirical investigation of the Norwegian bus transport industry

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  • Dag Morten Dalen

    (Institute for Fiscal Studies)

  • Gomez-Lobo, Gomez-Lobo

    (Institute for Fiscal Studies)

Abstract

In this paper we use data on the Norwegian bus transport industry to investigate the effects of different regulatory mechanisms and their economic implications. We develop a model that includes an efficiency parameter and a cost reduction effort variable, both of which enter the cost function, but which are not directly observable by the regulator. Given certain assumptions about how firms determine their cost reducing effort levels we can estimate the model. Parameter estimates can be used to design an optimal contract or other regulatory mechanisms. We use the results of our study to simulate the effects of different regulatory schemes, including the tendering of bus routes. One important finding is that an auction for a fixed price contract achieves almost the same level of welfare as the optimal auction. Therefore, the simpler fixed price contract auction seems to be the ideal regulatory mechanism in this case.

Suggested Citation

  • Dag Morten Dalen & Gomez-Lobo, Gomez-Lobo, 1996. "Regulation and incentive contracts: An empirical investigation of the Norwegian bus transport industry," IFS Working Papers W96/08, Institute for Fiscal Studies.
    • Handle: RePEc:ifs:ifsewp:96/08
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    Cited by:

    1. Andrea Boitani & Marcella Nicolini & Carlo Scarpa, 2013. "Do competition and ownership matter? Evidence from local public transport in Europe," Applied Economics, Taylor & Francis Journals, vol. 45(11), pages 1419-1434, April.
    2. Avenali, Alessandro & Boitani, Andrea & Catalano, Giuseppe & D’Alfonso, Tiziana & Matteucci, Giorgio, 2018. "Assessing standard costs in local public bus transport: A hybrid cost model," Transport Policy, Elsevier, vol. 62(C), pages 48-57.
    3. Ginés Rus & M. Socorro, 2010. "Infrastructure Investment and Incentives with Supranational Funding," Transition Studies Review, Springer;Central Eastern European University Network (CEEUN), vol. 17(3), pages 551-567, September.
    4. Massimiliano Piacenza, 2006. "Regulatory Contracts and Cost Efficiency: Stochastic Frontier Evidence from the Italian Local Public Transport," Journal of Productivity Analysis, Springer, vol. 25(3), pages 257-277, June.
    5. Philippe Gagnepain & Marc Ivaldi, 2002. "Incentive Regulatory Policies: The Case of Public Transit Systems in France," RAND Journal of Economics, The RAND Corporation, vol. 33(4), pages 605-629, Winter.
    6. Avenali, Alessandro & Catalano, Giuseppe & D'Alfonso, Tiziana & Matteucci, Giorgio, 2020. "The allocation of national public resources in the Italian local public bus transport sector," Research in Transportation Economics, Elsevier, vol. 81(C).
    7. Giovanni Fraquelli & Massimiliano Piacenza & Graziano Abrate, 2001. "Costs and Technology of Public Transit Systems in Italy:Some Insights to Face Inefficiency," CERIS Working Paper 200112, CNR-IRCrES Research Institute on Sustainable Economic Growth - Torino (TO) ITALY - former Institute for Economic Research on Firms and Growth - Moncalieri (TO) ITALY.
    8. 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.
    9. Dag Dalen & Andres Gómez-Lobo, 2003. "Yardsticks on the road: Regulatory contracts and cost efficiency in the Norwegian bus industry," Transportation, Springer, vol. 30(4), pages 371-386, November.
    10. Avenali, Alessandro & Boitani, Andrea & Catalano, Giuseppe & D’Alfonso, Tiziana & Matteucci, Giorgio, 2016. "Assessing standard costs in local public bus transport: Evidence from Italy," Transport Policy, Elsevier, vol. 52(C), pages 164-174.
    11. Massimiliano Piacenza, 2002. "Regulatory Constraints and Cost Efficiency of the Italian Public Transit Systems: An Exploratory Stochastic Frontier Model," CERIS Working Paper 200202, CNR-IRCrES Research Institute on Sustainable Economic Growth - Torino (TO) ITALY - former Institute for Economic Research on Firms and Growth - Moncalieri (TO) ITALY.
    12. Philippe Gagnepain & Marc Ivaldi, 2002. "Asymétries d'information et richesse immatérielle de l'entreprise," Revue Française d'Économie, Programme National Persée, vol. 16(3), pages 129-153.
    13. Giovanni Fraquelli & Massimiliano Piacenza & Graziano Abrate, 2004. "Regulating Public Transit Networks: How do Urban‐Intercity Diversification and Speed‐up Measures Affect Firms’ Cost Performance?," Annals of Public and Cooperative Economics, Wiley Blackwell, vol. 75(2), pages 193-225, June.
    14. Francesco, Gastaldi & Lucia, Quaglino & Carlo, Stagnaro, 2012. "Il trasporto pubblico locale e la concorrenza. Cambiare paradigma per salvare il servizio: il caso ligure [Local Public Transportation and Competition. Changing Paradigm to Save the Service: The Ca," MPRA Paper 49464, University Library of Munich, Germany.
    15. Philippe Gagnepain, 2001. "La nouvelle théorie de la régulation des monopoles naturels : fondements et tests," Post-Print hal-00622947, HAL.
    16. Luc Baumstark & Claude Ménard & William Roy & Anne Yvrande-Billon, 2005. "Modes de gestion et efficience des opérateurs dans le secteur des transports urbains de personnes," Post-Print halshs-00103116, HAL.
    17. Massimiliano Piacenza, 2000. "The Public Transit Systems In Italy: A Critical Analysis Of The Regulatory Framework," CERIS Working Paper 200016, CNR-IRCrES Research Institute on Sustainable Economic Growth - Torino (TO) ITALY - former Institute for Economic Research on Firms and Growth - Moncalieri (TO) ITALY.
    18. Dalen, Dag Morten & Gomez-Lobo, Andres, 1997. "Estimating cost functions in regulated industries characterized by asymmetric information," European Economic Review, Elsevier, vol. 41(3-5), pages 935-942, April.

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