004-Contracting Out Public Transit Services: A Competitive Performance-Based Approach

João M. Pinto, Mário Coutinho dos Santos & Pedro Verga Matos

This paper develops a bonus / malus incentive model to contracting out public transit services, and provides evidence on performance measures of a light-rail transit system operation, procured with a contract designed based on our modeling approach. Empirical results document that the implementation of a performance-based contract with an embedded incentive bonus / malus mechanism, may contribute to promote ridership patronage, increase the average ride, and ultimately significantly improving the overall economic operating efficiency of the system, measured by a 40 percent increase in the operating costs coverage ratio during the contract term.

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