The renegotiation cost of public transport services contracts

Philippe Gagnepain (1, 2) , Marc Ivaldi (3) , David Martimort (2)

1 CES - Centre d'économie de la Sorbonne
2 PSE - Paris School of Economics
3 TSE-R - Toulouse School of Economics

The renegotiation of regulatory contracts is known to prevent regulators from achieving the full commitment efficient outcome in dynamic contexts. However, assessing the cost of such renegotiation remains an open issue from an empirical viewpoint. To address this question, we fit a structural principal-agent model with renegotiation on a set of urban transport service contracts. The model captures two important features of the industry. First, only two types of contracts are used in practice (fixed-price and cost-plus). Second, subsidies increase over time. We compare a scenario with renegotiation and a hypothetical situation with full commitment. We conclude that the welfare gains from improving commitment would be significant but would accrue mostly to operators.

Domaines: Economies et finances

Philippe Gagnepain, Marc Ivaldi, David Martimort. The renegotiation cost of public transport services contracts. 2010. ⟨hal-00622961⟩