William ROY (LET, CNRS - Université Lumière Lyon 2)

1. Thredbo 9, Lisbon, 5-9 september 2005 9th International Conference on Competition and Ownership in Land Passenger Transport Ownership, Contractual Practices andTechnical Efficiency: The Case of UrbanPublic Transport in France William ROY (LET, CNRS - Université Lumière Lyon 2) Anne YVRANDE-BILLON (ATOM, Université Paris 1 Panthéon-Sorbonne)

2. 1975 1992 2002 Receipts / Operating costs 80% 55% 34% Introduction (1) • UPT in France : a dramatic evolution • An increasing operating deficit (€1.6 billions in 2002)... • … that leads to an impressive amount of subsidy (€ 3,2 billions in 2002, including investment expenditures) Thredbo 9, Lisbon, 5-9 september 2005

3. Introduction (2) • Context : the European wind of reform concerning local public transport regulation • In France, networks are operated with : • Several governance structures and ownership regimes : Direct Administration, semi-public or a private company • Several risk sharing and regulatory contracts : Concessions, fixed-price, fixed-price on costs only, cost-plus • Organisational and regulatory frameworks have an effect on UPT performances ? • Ownership and competition influence performances ? • Contractual choices have an impact on performances ? Thredbo 9, Lisbon, 5-9 september 2005

4. Choice of a regulatory scheme : make-or-buy ? Competition ? Incentives ? Direct public administration No - Management contract Local Authority Mixed company In principle + Gross cost contract Private company Ex ante ++ Net cost contract Thredbo 9, Lisbon, 5-9 september 2005

5. Cost risk borne by Local Authority Operator Revenue risk borne by Local Authority Management Contract :  = e s = se + (re-r)-(ce-c) Gross Cost Contract :  = e - (c-ce) s = se + (re-r) Operator Net Cost Contract:  = e + (r-re)- (c-ce) s = se A typology of urban public transport delegation contracts (risk sharing) “e”means expected, as opposed to realised “” is the operator’s profit ; “s” is the amount of subsidies “c” is the operating costs ; “r” is the commercial revenues Thredbo 9, Lisbon, 5-9 september 2005

6. Local Authorities choices Modes of organisation en 2002 Modes of delegation en 2002 Direct public Administration Management contract Concession 2% 10% 20% Delegation to a private company Net cost contracts Delegation to a mixed company 51% 69% Gross cost contract 21% 27% (in % of the number of networks) Thredbo 9, Lisbon, 5-9 september 2005

7. Network’s performance LA’s performance (long term) LA’s performance (short term) Fares Service specifications Environment Infrastructures Whose performance is it ? Operator’s performance Thredbo 9, Lisbon, 5-9 september 2005

8. Inputs : Labour, capital, energy… Productive efficiency Efficiency Supply : Levels of services : quantity et quality Commercial efficiency Consumption : passenger trips Efficiency and production process Thredbo 9, Lisbon, 5-9 september 2005

9. Frontier model : Battese et Coelli (1995) • Stochastic Frontier Analysis : a production function • Consider the production function • Where TE is the level of technical efficiency  with • TE is a function of a set of explanatory variables W including the regulatory scheme • A flexible functional form : translog • We estimate simultaneously : • parameters b of the production function • parameters d that explain TE y Frontier : y* yA A x x* xA Thredbo 9, Lisbon, 5-9 september 2005

10. Hypothesis tested • Ownership structure and performance • Hypothesis 1a: Private operators show higher technical efficiency than public ones • Hypothesis 1b: Semi-public operators show higher technical efficiency than public ones, but lower technical efficiency than private operators • Contracts and performance • Hypothesis 2a : Cost-plus contracts (management contracts in our typology) provide lower technical efficiency than fixed-price contracts (either gross contracts or net cost contracts) • Hypothesis 2b : Net cost contracts and gross cost contracts are equivalent in terms of incentives to technical efficiency Thredbo 9, Lisbon, 5-9 september 2005

11. Data and variables • 135 UPT networks between 1995 and 2002 • Networks without rail systems (only buses) • Networks serving more than 30 000 inhabitants • Inputs and control variables • Labour : driving and non-driving (including temporary and subcontracting) • Energy : consumption measured in equivalent diesel m3 • Capital stock : number of vehicles • Length of network lines • Population • Organisational variables explaining inefficiency • Ownership : Direct administration / semi-public firm / private firm • Type de contract : C+ / GCC / NCC Thredbo 9, Lisbon, 5-9 september 2005

12. Descriptive statistics Thredbo 9, Lisbon, 5-9 september 2005

13. Models to be estimated • We estimate the following translogarithmic production frontier (we omit the cross-products between the inputs X and the control variables Z). • The technical inefficiency effect is defined by : • Ownership regimes model (1) • Regulatory contracts model (2) Thredbo 9, Lisbon, 5-9 september 2005

14. Estimation results (Software FRONTIER 4.1) • Model 1 : { PUBLIC ; MIXED ; (PRIVATE) } • PUBLIC & MIXED < PRIVATE (H1a) • MIXED < PUBLIC ( H1b) • Model 2 : { MANAG ; GROSS ; NET ; (PUBLIC & MIXED) } • PUBLIC & MIXED < NET et GROSS (H1a) • PUBLIC & MIXED <ns MANAG ( H1a) • MANAG < NET & GROSS (H2a) • NET < GROSS ( H2b) Thredbo 9, Lisbon, 5-9 september 2005

15. Inefficiency scores Thredbo 9, Lisbon, 5-9 september 2005

16. Conclusions • Our estimations support the conjecture that technical efficiency cannot be measured independently of the regulatory constraints. • Expected effects : • Private operators outperform public ones • Operators under cost-plus contracts exhibit a higher level of technical inefficiency than operators under a fixed-price contract • Unexpected effects : • A semi-public company is the worst organisational choice in terms of technical efficiency • Gross cost contracts are better than net cost contracts ? Thredbo 9, Lisbon, 5-9 september 2005