An application proposal of yardstick competition to the regional - PowerPoint PPT Presentation

ETC 2004 Strasbourg An application proposal of yardstick competition to the regional markets of the French railway system Julien LEVEQUE jleveque@let.ish-lyon.cnrs.fr Laboratoire d’Économie des Transports (CNRS) 5 October 2004

ETC 2004 Strasbourg Framework The French monopoly problem The French monopoly problem � The French railway services (freight, inter-city, regional): 1938 1983 1994 2004 1 1 1 number of operators 1 SNCF SNCF SNCF operators SNCF � The regional rail transport services (TER): � suburban trains � interurban trains � rural trains 2

ETC 2004 Strasbourg Framework Current organization organization Current Average regional network in 2002: � 450 M P.K 64 P/Tr � 7.1 M Tr.K � 1157 km of lines � 70.7 km/h � traffic revenues = 40 % costs � operating income: 100 M € � operating result: 3.7 M € 3

ETC 2004 Strasbourg Framework Which incentives? Which incentives? delegate TER services 20 regional 1 operator regulators captures � Contracts (5-10 years) define PSO and subsidies: � quality incentives: bonus/malus � traffic incentives: SNCF bears the commercial risk � cost incentives: “RPI” + 0!!!!!!!!! � no call for tender lack of competitive pressure on costs 4

ETC 2004 Strasbourg Economic principles The yardstick competition mechanism The yardstick competition mechanism � Shleifer : Estimating what should be the best prices and subsidies, by comparing the performances of several similar, regulated firms: ∑ costs of firm j ≠ j i = revenues of firm i − N 1 costs of the compared firms have to be homogenous! 5

ETC 2004 Strasbourg Economic principles The proposed scheme: The proposed scheme: � Comparing the performances of the 20 regional SNCF departments � Implementation by a common agency of the regional regulators � Which incentives ? - financial gains / penalties - reputation effect 6

ETC 2004 Strasbourg Economic principles Benefits of the use of comparisons Benefits of the use of comparisons � reduction of the uncertainty due to: - prices increase - changes in labour legislation - national strikes � reduction of the informational rent due to: - spatial organization - labour organization 7

ETC 2004 Strasbourg Measure of efficiency Correcting external heterogeneity Correcting external heterogeneity � endogenous heterogeneity: due to political decisions in defining PSO Nash : customer = government, output = level of service: Tr.K ( ≠ number of P.K) � exogenous heterogeneity: due to the environment (infrastructure, society) introduction of environmental variables in the model 8

ETC 2004 Strasbourg Measure of efficiency The cost frontier model The cost frontier model � data issued from the regional accounts of the SNCF (1997 & 1998) � stochastic cost frontier : ∑ = β + β + β + β + + lnC lnTr.K lnL.L lnw v u it 0 1 it 2 it k k, it it it > k 2 � control of the external heterogeneity : ∑ = δ + δ + ε u Z it 0 k k, it it ≥ k 1 9

ETC 2004 Strasbourg Measure of efficiency Estimation results Estimation results Dependent variable: ln C – Observations: 40 1 st model 2 nd model 3 rd model Variables Coefficient t-test Coefficient t-test Coefficient t-test Constant 1.266 5.45 0.8948 62.1 2.460 12.4 ln Tr.K 1.177 35.0 1.226 78.2 1.033 39.0 ln L.L - 0.08707 -1.88 -0.09949 -3.46 -0.08723 -2.01 Constant 0.05309 0.16 -0.05082 -1.07 -0.03764 -1.98 Delinq 2.088 2.02 2.555 3.41 3.584 4.91 Load 0.01014 5.39 0.005219 14.1 - 0.8762 E-3 -0.7097 E-3 P.K -2.63 -118 Exp - 0.06364 -1.04 Speed -0.005289 -1.50 0.1998 E-5 K 0.23 0.966 19.8 0.999 688 0.999 237 γ Log-L 63.94 71.76 63.38 10

ETC 2004 Strasbourg Measure of efficiency The cost frontier The cost frontier ln C 12,5 12 11,5 11 10,5 10 9,5 9 0 20000 40000 60000 80000 100000 120000 140000 160000 agregated output observations frontier 11

ETC 2004 Strasbourg Measure of efficiency Efficiency scores Efficiency scores 1,2 1,15 1,1 1,05 1 0,95 0,9 s n e é s s e e n e e e e e e C e A e e A i e o e t d r i n n n n n d r i m c i n i s D t l C R é o d t i n n g l g a g i n n n u i a a o s A n L r P a e o a s r a e a o e t C e é r s m N r g t i l P m a c r C m d u A a u e o v r - r l i r q r y e r u P h u o L r i A o B P e o A L h C o R A N d - N - c B e - - i - d n u c s - n e e i a o o y g M t s r d u a t a s F i o e a P p a H P u m B g 12 a n h a C L

ETC 2004 Strasbourg Conclusion Towards a more incentive regulation scheme Towards a more incentive regulation scheme � Yardstick competition could be implemented: - while maintaining the legal monopoly of the SNCF - external heterogeneity can be controlled - internal heterogeneity (inefficiency) is quite important � Franchising should be introduced in addition 13

ETC 2004 Strasbourg Conclusion Thank you Thank you for your attention for your attention 14