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

In the French urban public transport industry, services are often delegated to a private firm by the mean of a fixed-term regulatory contract. This contract specifies the duties of the firm and a financial compensation. When it expires, a new contract is awarded, possibly to a different operator. Cost-plus and fixed-price (gross cost or net cost) contracts are commonly used to regulate the operators in the transport industry. In this paper, we analyse the incentives for the operator to reduce its cost. These incentives come from both the profit maximization during the current contract and the perspective of contract renewal. In our model, the amount of cost-reducing effort depends on the contract type and the time remaining till contract expiration. We use a sample of 124 French urban public transport networks covering the period 1995-2002 to test our predictions. Our proxy for the cost reducing effort is technical efficiency. The data largely confirm the importance of contract type on performances and the incentive effect of contract renewal.

Contract renewal as an incentive device. An application to the French urban public transport sector

In the French urban public transport industry, services are often delegated to a private firm by the mean of a fixed-term regulatory contract. This contract specifies the duties of the firm and a financial compensation. When it expires, a new contract is awarded, possibly to a different operator. Cost-plus and fixed-price (gross cost or net cost) contracts are commonly used to regulate the operators in the transport industry. In this paper, we analyse the incentives for the operator to reduce its cost. These incentives come from both the profit maximization during the current contract and the perspective of contract renewal. In our model, the amount of cost-reducing effort depends on the contract type and the time remaining till contract expiration. We use a sample of 124 French urban public transport networks covering the period 1995-2002 to test our predictions. Our proxy for the cost reducing effort is technical efficiency. The data largely confirm the importance of contract type on performances and the incentive effect of contract renewal.incentive regulation, urban transport, stochastic frontier analysis.

Ownership, Contractual Practices and Technical Efficiency: The Case of Urban Public Transport in France

This paper investigates the impact of ownership structure and contractual choices on technical efficiency in the French urban public transport sector. The central proposition, which relies on classical contract theory arguments, is that ownership regime and contractual practices are key determinants of performances.To test this proposition, we use an original panel data set covering 135 different French urban transport networks over the period 1995-2002 and we apply a stochastic frontier methodology.The econometric results corroborate our proposition: the technical efficiency of urban public transport operators depends on the ownership regime and on the type of contract governing their transactions.Contracts ; Contractual Incentives ; Contractual arrangements ; Ownership ; Efficiency ; Performance ; Urban Public Transport ; Public Service Governance

Auction versus Negotiation in Public Procurement: Looking for Empirical Evidence

The relative efficiency of auctions and negotiations is still a puzzle in the literature. While auctions are the prescribed procedures and the most used ones for public procurement, in the private sector, where buyers are free to choose their purchasing method, competitive tendering is far from being their preferred option (Bajari et al. 2009). In addition, recent empirical studies (Estache et al. 2009, Bajari et al. 2009) highlight some failures of auction procedures and identify conditions under which negotiation is more efficient. In particular, they show that auctions perform poorly when projects are complex. In this paper, our aim is to contribute to this debate by providing an empirical analysis of how awarding mechanisms are chosen in public procurement in France. To this end, we examine a comprehensive database of 76,188 observations corresponding to the entire set of public procurement work contracts awarded between 2005 and 2007 in the construction sector. We find empirical regularities regarding the choice of awarding procedures by public buyers. However, most of these regularities do not coincide with what the theoretical literature considers as transaction-cost minimizing behaviours. In particular, the size of the construction projects as well as the length of contracts do not appear as key determinants of the choice of awarding procedures, which translates into costly renegotiations.Auctions; Public Procurement, Contract Theories

Ownership, Contractual Practices and Technical Efficiency:

This paper investigates the impact of ownership structure and contractual choices on technical efficiency in the French urban public transport sector. The central proposition, which relies on classical contract theory arguments, is indeed that ownership regime and contractual practices are key determinants of performances. To test this proposition, we use an original panel data set covering 135 different French urban transport networks over the period 1995-2002 and we apply a stochastic frontier methodology. The econometric results corroborate our proposition: the technical efficiency of urban public transport operators depends on the ownership regime as well as on the type of contract that governs their transactionsInstitute of Transport and Logistics Studies. Faculty of Economics and Business. The University of Sydne

Appels d’offres concurrentiels et avantage au sortant, une étude empirique du secteur du transport public urbain en France

Cet article porte sur les déterminants de la reconduction des contrats de services publics attribués par appels d’offres concurrentiels. Partant de la constatation que ces contrats changent très rarement de mains, on s’interroge sur les raisons de cette stabilité des prestataires de services publics. Plus précisément, l’analyse empirique porte sur le secteur du transport public urbain en France et cherche à identifier les variables explicatives de l’avantage au sortant. La base de données que nous avons construite pour ce faire recense l’ensemble des appels d’offres organisés dans ce secteur entre 1995 et 2006. L’étude économétrique qu’elle nous permet de réaliser révèle que les principaux déterminants de l’avantage au sortant sont la part de marché de l’opérateur en place et le degré de transparence de la procédure de passation des contrats. Ces résultats amènent à s’interroger sur l’existence d’une concurrence effective et sur les gains associés au recours aux appels d’offres concurrentiels dans ce secteur.This paper investigates the determinants of contracts’ renewal in utilities industries where competitive tendering is used. As most of these contracts remain in the hands of the incumbents, we study the reasons of such a stability. More precisely, the empirical analysis deals with the urban public transport sector in France and looks for the determinants of the incumbents’ advantage. The database we built gathers all the auctions organized in this sector between 1995 and 2006. The econometric study shows that the main determinants of incumbents’ advantage are the market share of the incumbent and the degree of transparency of the competitive tendering procedure. These results question the existence of an effective competition and the benefits of competitive tendering in the sector

Delivering Value for Money to Government through Efficient and Effective Public Transit Service Continuity: Some Thoughts

This paper documents some thoughts on the reform agenda in public transit that is occurring throughout the world. The specific focus is on a growing commitment to competitive regulation through competitive tendering, and the efforts by a few governments (notably in Australia) to take control of the tangible assets used by private operators as a mechanism to exercise the opportunity, if so taken, to put services out to competitive tender. We review the theoretical arguments and the empirical evidence on contracting regimes and asset ownership, and the role that government and operator might play in a setting in which building trusting and collaborative partnerships has merit in delivering services that are in the main funded from the public purse

Combining Competitive Tendering with Formal and Informal Ex Post Mechanisms: Evidence from the French Urban Transport Sector

Commentaire d'articleInternational audienc

Concurrence et délégation de services publics. [Quelques enseignements de la théorie des coûts de transaction]

Competitive Tendering in Utilities. Some Lessons from Transaction Cost Economics The use of competitive tendering in utilities industries has been developing for two decades. The main theoretical argument behind this trend is that auctioning the right to provide a public good or service allows introducing competitive pressures in natural monopolies. However, in the light of the recent developments in Transaction Cost Economics, this conclusion needs to be qualified. Indeed, this approach highlights that franchising public services encounters several difficulties that we review and illustrate in this paper.La pratique des appels d'offres concurrentiels dans les industries de services publics s'est considérablement développée depuis deux décennies. Le principal argument théorique sur lequel s'appuie cette tendance est que la mise aux enchères du droit de fournir un bien ou un service public permet d'introduire des pressions concurrentielles dans des secteurs en monopole naturel. A la lumière des développements récents de la théorie des coûts de transaction, cette conclusion est cependant à nuancer. Cette approche souligne en effet les difficultés de mise en oeuvre de la concurrence pour le marché dans les industries de services publics, difficultés que nous passons en revue et illustrons dans cet article.Yvrande-Billon Anne. Concurrence et délégation de services publics. [Quelques enseignements de la théorie des coûts de transaction]. In: Revue française d'économie, volume 22, n°3, 2008. pp. 97-131

Appels d'offres concurrentiels et avantage au sortant : une étude empirique du secteur du transport public urbain en France

International audienceThis paper investigates the determinants of contracts' renewal in utilities industries where competitive tendering is used. As most of these contracts remain in the hands of the incumbents, we study the reasons of such a stability. More precisely, the empirical analysis deals with the urban public transport sector in France and looks for the determinants of the incumbents' advantage. The database we built gathers all the auctions organized in this sector between 1995 and 2006. The econometric study shows that the main determinants of incumbents' advantage are the market share of the incumbent and the degree of transparency of the competitive tendering procedure. These results question the existence of an effective competition and the benefits of competitive tendering in the sector.Cet article porte sur les déterminants de la reconduction des contrats de services publics attribués par appels d'offres concurrentiels. Partant de la constatation que ces contrats changent très rarement de mains, on s'interroge sur les raisons de cette stabilité des prestataires de services publics. Plus précisément, l'analyse empirique porte sur le secteur du transport public urbain en France et cherche à identifier les variables explicatives de l'avantage au sortant. La base de données que nous avons construite pour ce faire recense l'ensemble des appels d'offres organisés dans ce secteur entre 1995 et 2006. L'étude économétrique qu'elle nous permet de réaliser révèle que les principaux déterminants de l'avantage au sortant sont la part de marché de l'opérateur en place et le degré de transparence de la procédure de passation des contrats. Ces résultats amènent à s'interroger sur l'existence d'une concurrence effective et sur les gains associés au recours aux appels d'offres concurrentiels dans ce secteur