The Theory of Incentives Applied to the Transport Sector
25 Pages Posted: 20 Feb 2009
Date Written: February 4, 2009
Building upon Iossa and Martimort (2008), we study the main incentive issues and the form of optimal contracts for Public Private Partnerships (PPPs) in transports. We present a basic model of procurement in a multitask environment in which a risk-averse firm chooses unobservable efforts in infrastructure and service quality. We begin by analyzing the effect on incentives and risk transfer of bundling building and operation into a single contract. We consider the factors that affect the optimal allocation of demand risk and their implications for the choice of contract length. We discuss the dynamics of PPP contracts and how the risk of regulatory opportunism affects contract design and incentives.
Keywords: Contracting out, public-private partnerships, public-service provision
JEL Classification: D8, H54, H57, L5, L91
Suggested Citation: Suggested Citation