M. Pilar Socorro

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.

Mergers Under Uncertainty: The Effects of Debt Financing

In this paper, we consider a Cournot oligopoly with demand uncertainty, fixed costs and constant marginal costs. The demand uncertainty makes some mergers that would be unprofitable in a certain environment profitable in this model. However, socially advantageous mergers may be still unprofitable for the colluding firms, so public intervention may be needed. One possibility consists in subsidizing such mergers. However, the combination of limited liability debt financing and an appropriate antitrust policy leads to higher social welfare than subsidies. The reason is that, given the limited liability effect, merging parties compete more aggressively, so the reduction in market quantity is mitigated.

Planning, Evaluation and Financing of Transport Infrastructures: Rethinking the Basics

Abstract This paper revises some of the common views on transport infrastructure investment and proposes alternative ways to achieve a more efficient planning, evaluation and financing of transport infrastructures in a world where planners may pursue their own interests, there exist different levels of government, and budget constraints are pervasive. We focus on the need for public planning and independent economic evaluation, and the importance of deciding the pricing scheme in the planning phase. We also discuss the institutional design and its effect on investment decisions, particularly, the financing of projects under different levels of government and its perverse consequences on infrastructure capacity choices. We use as an example the development of the HSR to serve medium-distance trips in corridors where air transport is a very close substitute.