Cost Efficiency In Swedish Bus Contracts

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In Sweden, the 21 county-wise organized Public Transport Authorities (PTA)are in charge the local public transport provision. Since the 1990’s, the PTAshave used, almost exclusively, competitive tendering to arrange the traffic.When implemented, the competitive tendering process decreased costs, whilethe opposite effect was observed when the number of tendering rounds in-creased (Alexandersson and Pyddoke, 2010). National statistics now suggeststhat supply has increased with 30 percent during the last decade, while thetotal costs have increased with over 50 percent. Further, the process of de-signing contracts for traffic areas varies across PTAs, meaning that there arelittle consensus in how and when to use different contracting factors. For ex-ample, while some PTAs use incentives payment based on patronage, othersuse fixed price contracts. Another example of the heterogeneous manage-ment is that some PTAs choose to provide some, or in one case all, of theirtraffic using their own operators (that is, no competitive tendering round isissued). Due to the issues discussed above, there is a need for better under-standing in what drives cost inefficiencies. Accordingly, the purpose of thispaper is to estimate the cost inefficiency in bus contracts tendered by thePTAs, and determine how contract design factors affect the same.

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