Article

Economic efficiency and political capture in public service contracts

Philippe Gagnepain, and Marc Ivaldi

Abstract

We consider contrac ts f or public transport services between a p ublicauthority and a transport operator. We b ui ld a struct ural endo gen ousswitching model w her e the contract choice re su lts from the combinedef fect s of the incentiviza tion scheme aimed a t monitoring the opera tor?sef fic iency and the politi cal agenda followed by the r egulator to accountfor the v oice of pri vate inter ests. Our resu lts support theoreticalpr ediction s a s they suggest tha t cost-plus contracts entail a higher costfor society than fix ed-price contracts b ut allo w the public authority toleave a rent to a subset of ind i viduals. Accountin g f o r transfers tointer est groups in welfar e computations reduces the welfar e ga p betweencost-plus and fix ed-price regimes.

Reference

Philippe Gagnepain, and Marc Ivaldi, Economic efficiency and political capture in public service contracts, The Journal of Industrial Economics, vol. 65, n. 1, March 2017, pp. 1–38.

Published in

The Journal of Industrial Economics, vol. 65, n. 1, March 2017, pp. 1–38