Edited by André de Palma, Robin Lindsey, Emile Quinet and Roger Vickerman
Chapter 29: The Theory of Incentives Applied to the Transport Sector
Elisabetta Iossa and David Martimort INTRODUCTION Efficient transport infrastructure is crucial to economic development. Improvements in transport networks enhance competitiveness and boost economic growth by raising the marginal product of labor and capital and thus the overall efficiency of the productive mix (see, for example, Aschauer, 1989). Furthermore, as firms tend to locate in areas offering wider access to supply and demand markets, transport infrastructures enhance some locations attractiveness towards new productive settlements which result in selfreinforcing growth mechanisms (see Messina, 2008). But how should transport infrastructure be procured and financed? Substantial institutional changes have taken place in the European Public Transport scene over the past 20 years. The use of contracting has been spreading over all transport sectors and greater risk transfer to private operators has been achieved. At the same time, competitive tendering practices have gradually been implemented to replace direct awarding of contractual rights and a number of municipal operators have been privatized. The spread of public-private partnerships (hereafter abbreviated as PPPs) is a significant part of this trend. Under a PPP, a public authority (local or central government or a government agency) enters a long-term contractual arrangement with a private supplier (or a consortium of private suppliers) for the delivery of some services. The supplier takes responsibility for building infrastructure, financing the investment and then managing and maintaining the assets. At the end of the contract, assets are transferred to the government under terms agreed to in the contract. Payments to the contractor can either come...
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