Ginés de Rus

Flexible-Term Contracts for Road Franchising

Private participation in road projects is increasing around the world. The most popular franchising mechanism is a concession contract, which allows a private firm to charge tolls to road users during a pre-determined period in order to recover its investments. Concessionaires are usually selected through auctions at which candidates submit bids for tolls, payments to the government, or minimum term to hold the contract. This paper discusses, in the context of road franchising, how this mechanism does not generally yield optimal outcomes and it induces the frequent contract renegotiations observed in road projects. A new franchising mechanism is proposed, based on flexible-term contracts and auctions with bids for total net revenue and maintenance costs. This new mechanism improves outcomes compared to fixed-term concessions, by eliminating traffic risk and promoting the selection of efficient concessionaires.

The Economic Effects of High Speed Rail Investment

The allocation of traffic between different transport modes follows transport user decisions which depend on the generalized cost of travel in the available alternatives. High Speed Rail (HSR) investment is a government decision with significant effects on the generalized cost of rail transport; and therefore on the modal split in corridors where private operators compete for traffic and charge prices close to total producer costs (infrastructure included). The rationale for HSR investment is not different to any other public investment decision. Public funds should be allocated to this mode of transport if its net expected social benefit is higher than in the next best alternative. The exam of data on costs and demand shows that the case for investing in HSR is strongly dependent on the existing volume of traffic where the new lines are built, the expected time savings and generated traffic and the average willingness to pay of potential users, the release of capacity in congested roads, airports or conventional rail lines and the net reduction of external effects. This paper discusses, within a cost-benefit analysis framework, under which conditions the expected benefits from deviated traffic (plus generated traffic), and other alleged external effects and indirect benefits justify the investment in HSR projects. It pays special attention to intermodal effects and pricing.

The BCA of HSR: Should the Government Invest in High Speed Rail Infrastructure?

This paper deals with public investment in High-Speed Rail (HSR) infrastructure and tries to understand the economic rationale for allocating public money to the construction of new HSR lines. The examination of data on costs and demand shows that the case for investing in HSR requires several conditions to be met: an ex ante high volume of traffic in the corridor where the new lines are built, significant time savings, high average willingness of potential users to pay, the release of capacity in the conventional rail network and airports. On the contrary, net environmental benefits seem to be insignificant in influencing the social desirability of HSR investment. This paper discusses, within a cost-benefit analysis framework, under which conditions the expected benefits could justify the investment in HSR projects.This paper deals with public investment in High-Speed Rail (HSR) infrastructure and tries to understand the economic rationale for allocating public money to the construction of new HSR lines. The examination of data on costs and demand shows that the case for investing in HSR requires several conditions to be met: an ex ante high volume of traffic in the corridor where the new lines are built, significant time savings, high average willingness of potential users to pay, the release of capacity in the conventional rail network and airports. On the contrary, net environmental benefits seem to be insignificant in influencing the social desirability of HSR investment. This paper discusses, within a cost-benefit analysis framework, under which conditions the expected benefits could justify the investment in HSR projects.

Competition in the Railway Industry

Numerous countries have attempted to improve the performance of their railways by introducing more competition, but there is fierce debate and no consensus on how this is best achieved. This book reveals how railways were an obvious target for reform because they were often losing traffic and money, and because the government was typically deeply involved as either owner or regulator.

COMPETITIVE REGIMES WITHIN THE EUROPEAN BUS INDUSTRY: THEORY AND PRACTICE

There seems to be a general move within Europe and North America towards a reduction in economic regulation and a further move towards public enterprise privatisation. This paper takes a European-wide analysis of the conditions of competition and contestability within the bus industry. The first part examines the theoretical arguments for regulatory reform and focuses in particular on the dynamics of the likely responses from the incumbent operators in anticipating the actual form of deregulation prior to legislative changes, and in the likely consequent actions to maintain their market position -- Pre-entry actions and post-entry reactions. Comment is also made on whether contestable bus markets are sustainable. The evidence of 10 years experience in Britain will be used to argue these propositions. The second part of the paper argues the case that potential competition is not enough and that certain actions need to be taken to ensure the market remains contestable. The experience of Britain is compared to the competitive regimes in other European Countries.

ARGENTINA'S TRANSPORT PRIVATIZATION AND RE-REGULATION: UPS AND DOWNS OF A DARING DECADE-LONG EXPERIENCE

When Argentina initiated reform of its transport sector in 1989, it had few models to follow. It was the first Latin American country to privatize its intercity railroad, to explicitly organize intraport competition, and to grant a private concession to operate its subway. It was second (after Japan) to privatize its urban commuter railways and one of the first in the developing world to grant road concessions to private operators. Argentinas experience shows that transport privatization and deregulation provide efficiency gains that can be delivered to users. Despite unexpectedly high residual subsidy requirements, fiscal costs are lower, services have improved, and new investment is taking place. Argentinas decade-long experience shows that the reform process involves learning by doing. Inexperienced new regulators quickly face the challenges in controlling monopoly power and providing long-run incentives for private investment. Designing sustainable reform requires a commitment by government to minimize its role in the sector and to respect its original promises to both users and concessionaires. Argentina has learned the importance of building up the regulatory capacity needed to monitor contracts, especially when initial uncertainty about demand and cost conditions is strong and renegotiation is the probable outcome of daring reform. The governments main challenge in monitoring contracts is to get enough information to reach a balance in its decisions about distributing efficiency gains fairly between consumers and private investors. This is one area in which Argentina may not yet have met the challenge. As the last wave of contract extensions in rail and roads comes to an end, one issues is likely to be the need for better targeting of subsidies for the poor.

The Prospects for Competition

Numerous countries have attempted to improve the performance of their railways by introducing more competition, but there is fierce debate and no consensus on how this is best achieved. This book reveals how railways were an obvious target for reform because they were often losing traffic and money, and because the government was typically deeply involved as either owner or regulator.

The effectiveness of the Spanish urban transport contracts in terms of incentives

We consider a principal–agent model in which the regulator faces a moral hazard problem as he cannot observe the effort exerted by public transit operators. In this context, we analyse the effectiveness of the different urban transport contracts signed by the Spanish Central Government since 1990 in terms of incentives. The main result is that none of these contracts provides the appropriate incentives to public transit operators. Thus, we propose a fixed-quantity contract as an alternative financing mechanism. The fixed-quantity contract is a high-powered incentive contract that allows the regulator to perfectly forecast the amount of public funds to be used in the urban transport system. Moreover, the fixed-quantity contract can be adjusted to attain the equilibrium between incentives and optimal allocation of risk.We consider a principal-agent model in which the regulator faces a moral hazard problem as he cannot observe the effort exerted by public transit operators. In this context, we analyse the effectiveness of the different urban transport contracts signed by the Spanish Central Government since 1990 in terms of incentives. The main result is that none of these contracts provides the appropriate incentives to public transit operators. Thus, we propose a fixed-quantity contract as an alternative financing mechanism. The fixed-quantity contract is a high-powered incentive contract that allows the regulator to perfectly forecast the amount of public funds to be used in the urban transport system. Moreover, the fixed-quantity contract can be adjusted to attain the equilibrium between incentives and optimal allocation of risk.

Economic Evaluation and Incentives in Transport Infrastructure Investment

Large infrastructure projects are high cost investments devoted to the construction and operation of long life, specific assets, characterized by demand uncertainty and irreversibility. Besides these technical characteristics, the usual institutional setting for the proposal, evaluation and selection of projects, is one of different agents in a context of asymmetric information, with their own, and sometimes conflicting, objective functions. The selection of large investment projects in a multi-government setting, as it is the case within the European Union, deserves some modelling of the decision taking process. Many infrastructure projects co-financed by the European Commission can be treated as investments proposed by a Member State, approved and partially financed by the Commission. Once it is assumed that the objective function of the European Commission and any Member State may differ it is worth examining the consequences in terms of the incentives in the actual system of selection and finance of large infrastructure projects. This paper addresses the adverse selection problem which may be favouring the construction of socially undesirable projects from a European perspective. One way out of this is a better design for project selection introducing alternative mechanism with new incentives aimed to the efficient allocation of public funds. Meanwhile, to gather new information can help in the screening of projects. This paper deals with the problem of increasing the information available through the use of known cost ranges and values determinant in the social profitability of high speed rail investment projects. The idea is to inverse the evaluation process, and to figure out the demand threshold required for a positive net social benefit, instead of estimating the net social benefit of the project given a demand forecast. This does not mean that the present incentives to inefficient investment will change, but relevant information on the starting demand volumes required for a project to be socially profitable will help in the discussion on the ranking of projects competing for public money.

Urban public transport in the Baltic states

This paper offers a panoramic view of the actual situation of urban public transport in Baltic states cities. To the extent to which these cities can be considered as representative of medium and small urban areas, our results could be generalized to other economies in transition. Two aspects are studied here: demand equations and cost structures. Based on the limited available data, simple models are estimated which provide relevant information to policy‐makers of these countries. In addition, these models can be used to predict some foreseeable effects which can be expected in the near future, in the light of western countries’ experience. Moreover, this type of preliminary analysis allows us to identify areas in which more elaborated data bases should be developed, to be able to implement more complex models.