Economic Efficiency and Political Capture in Public Service Contracts

Philippe Gagnepain () and Marc Ivaldi
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Philippe Gagnepain: PJSE - Paris Jourdan Sciences Economiques - UP1 - Université Paris 1 Panthéon-Sorbonne - ENS-PSL - École normale supérieure - Paris - PSL - Université Paris Sciences et Lettres - INRA - Institut National de la Recherche Agronomique - EHESS - École des hautes études en sciences sociales - ENPC - École nationale des ponts et chaussées - CNRS - Centre National de la Recherche Scientifique, PSE - Paris School of Economics - UP1 - Université Paris 1 Panthéon-Sorbonne - ENS-PSL - École normale supérieure - Paris - PSL - Université Paris Sciences et Lettres - EHESS - École des hautes études en sciences sociales - ENPC - École nationale des ponts et chaussées - CNRS - Centre National de la Recherche Scientifique - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement

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Abstract: We consider contracts for public transport services between a public authority and a transport operator. We build a structural endogenous switching model where the contract choice results from the combined effects of the incentivization scheme aimed at monitoring the operator's efficiency and the political agenda followed by the regulator to account for the voice of private interests. Our results support theoretical predictions as they suggest that cost-plus contracts entail a higher cost for society than fixed-price contracts but allow the public authority to leave a rent to a subset of individuals. Accounting for transfers to interest groups in welfare computations reduces the welfare gap between cost-plus and fixed-price regimes.

Keywords: Public; Service; Contracts (search for similar items in EconPapers)
Date: 2017-03
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Citations: View citations in EconPapers (8)

Published in Journal of Industrial Economics, 2017, 65 (1), pp.1-38. ⟨10.1111/joie.12118⟩

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Related works:
Journal Article: Economic Efficiency and Political Capture in Public Service Contracts (2017)
Working Paper: Economic Efficiency and Political Capture in Public Service Contracts (2017)
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Persistent link: https://EconPapers.repec.org/RePEc:hal:pseptp:halshs-01524894

DOI: 10.1111/joie.12118

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