Efficient contracting and incentive agreements between regulators and bus operators: The influence of risk preferences of contracting agents on contract choice
Document Type
Journal Article
Publication Date
2016
Subject Area
place - australasia, mode - bus, planning - surveys, organisation - contracting, literature review - literature review, operations - performance, planning - service level
Keywords
Risk attitude, Perceptual conditioning, Performance incentives, Performance-based contracts, Cost-plus contracts, Fixed-fee contracts
Abstract
Contracts that govern transactions between regulators and operators are an important feature of service delivery in public transport. This paper reviews the literature on efficient contracting in general and its application to public transport contracts and found little empirical evidence on the influence of risk preferences of contracting agents on contract choice, a fundamental premise of classical contracting theory. Departing from the existing literature, this paper develops a choice experiment to study public transport operators’ preferences for different contractual forms. People involved in the public transport industry across Australia are invited to do the survey but the respondents are mainly bus operators in New South Wales. The respondents are offered two hypothetical contracts with different risk profiles and incentives and asked to indicate their preferences as well as their acceptance to provide the services under the contract they prefer. A non-linear scaled multinomial logit model is estimated to establish the role of risk allocation on contract preference of bus operators and the optimal amount of risks and incentives, conditioned on the operators’ attitude towards risk. The results help authorities design performance-based contracts to obtain their objectives while maintaining the operators’ level of satisfaction.
Rights
Permission to publish the abstract has been given by Elsevier, copyright remains with them.
Recommended Citation
Hensher, D.A., Ho, C., & Knowles, L. (2016). Efficient contracting and incentive agreements between regulators and bus operators: The influence of risk preferences of contracting agents on contract choice. Transportation Research Part A: Policy and Practice, Vol. 87, pp. 22–40.
Comments
Transportation Research Part A Home Page:
http://www.sciencedirect.com/science/journal/09658564