The Theory of Incentives Applied to the Transport Sector

Iossa, Elisabetta; Martimort, David

doi:10.2139/ssrn.1346884

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The Theory of Incentives Applied to the Transport Sector

25 Pages Posted: 20 Feb 2009

See all articles by Elisabetta Iossa

Elisabetta Iossa

University of Rome Tor Vergata; IEFE Bocconi University; Centre for Economic Policy Research (CEPR)

David Martimort

University of Toulouse 1 - Industrial Economic Institute (IDEI); CESifo (Center for Economic Studies and Ifo Institute)

Date Written: February 4, 2009

Abstract

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

Iossa, Elisabetta and Martimort, David, The Theory of Incentives Applied to the Transport Sector (February 4, 2009). Available at SSRN: https://ssrn.com/abstract=1346884 or http://dx.doi.org/10.2139/ssrn.1346884