A Handbook of Transport Economics
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A Handbook of Transport Economics

Edited by André de Palma, Robin Lindsey, Emile Quinet and Roger Vickerman

Bringing together insights and perspectives from close to 70 of the world’s leading experts in the field, this timely Handbook provides an up-to-date guide to the most recent and state-of-the-art advances in transport economics. The comprehensive coverage includes topics such as the relationship between transport and the spatial economy, recent advances in travel demand analysis, the external costs of transport, investment appraisal, pricing, equity issues, competition and regulation, the role of public–private partnerships and the development of policy in local bus services, rail, air and maritime transport.
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Chapter 28: Competition, Regulation and Public Service Obligations

Marco Ponti


Marco Ponti INTRODUCTION: THE CONCEPTUAL BACKGROUND The traditional ‘social choice’ approach states that public intervention is needed in the presence of social goals and/or of market failures. Historically this intervention has assumed the form known as ‘command and control’, that is, direct public production or, more frequently, by means of ‘public agencies’. Within this model, the public actor (the ‘principal’) is assumed in fact to be both benevolent and all-knowing. Therefore he will be perfectly able both to obtain from his ‘agents’ (the above-mentioned public agencies in charge of providing the service) efficient results, and to succeed in targeting welfare maximization. But the assumption of benevolent and all-knowing public principals and agencies is clearly unrealistic, and considering these public principals as ‘humans’, and not angels, in the line of the ‘public choice’ school, is much more realistic.1 Among the many facts that prove this orientation, are the performances of the public agencies which have in general deteriorated over time, due to mechanisms of ‘capture’, that is, the influence of the interests of the agency on the decision maker, of ‘rent seeking’, that is, the tendency of the agency to reduce its effort, and of ‘informative rents’, that is, the possibility of the agency to manipulate the relevant information in its favour (see Buchanan, 1969). The State has difficulties in simultaneously meeting welfare and efficiency objectives. It faces problems in getting productive efficiency: the minimization of labor costs is an all-important factor of efficiency, while welfare objectives are in general connected...

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