TY - JOUR
T1 - Regulatory contracts and cost efficiency
T2 - Stochastic frontier evidence from the Italian local public transport
AU - Piacenza, Massimiliano
PY - 2006/6
Y1 - 2006/6
N2 - The main objective of this paper is to investigate the way subsidization mechanisms affect the cost efficiency of public transit systems, taking into account the role played by the environmental characteristics of each network. A cost frontier model is estimated for a seven-year panel of 44 Italian transit companies run under two different regulatory schemes (cost-plus or fixed-price), using the approach proposed by Kumbhakar et al. (1991), Huang and Liu (1994) and Battese and Coelli (1995). The main evidence is that, given network characteristics, transit operators with high-powered incentive contracts (fixed-price subsidies) exhibit lower distortions from the minimum costs. Environmental conditions (network speed levels) also have a significant impact on inefficiency differentials and influence the efficacy of incentive regulation. Overall, these results highlight a scope for transport policy to increase X-efficiency. Furthermore, they stress the importance of incentive theory and modern regulatory economics for the production analysis of regulated utilities.
AB - The main objective of this paper is to investigate the way subsidization mechanisms affect the cost efficiency of public transit systems, taking into account the role played by the environmental characteristics of each network. A cost frontier model is estimated for a seven-year panel of 44 Italian transit companies run under two different regulatory schemes (cost-plus or fixed-price), using the approach proposed by Kumbhakar et al. (1991), Huang and Liu (1994) and Battese and Coelli (1995). The main evidence is that, given network characteristics, transit operators with high-powered incentive contracts (fixed-price subsidies) exhibit lower distortions from the minimum costs. Environmental conditions (network speed levels) also have a significant impact on inefficiency differentials and influence the efficacy of incentive regulation. Overall, these results highlight a scope for transport policy to increase X-efficiency. Furthermore, they stress the importance of incentive theory and modern regulatory economics for the production analysis of regulated utilities.
KW - Cost efficiency
KW - Incentive regulation
KW - Local public transport
KW - Stochastic frontier
KW - Subsidies
UR - http://www.scopus.com/inward/record.url?scp=33745038038&partnerID=8YFLogxK
U2 - 10.1007/s11123-006-7643-7
DO - 10.1007/s11123-006-7643-7
M3 - Review article
SN - 0895-562X
VL - 25
SP - 257
EP - 277
JO - Journal of Productivity Analysis
JF - Journal of Productivity Analysis
IS - 3
ER -