Some lessons from incentive theory: Promoting quality in bus transport

While service quality is an important problem in bus transport services, few transport authorities have considered the solution of modifying their concession contracts. This paper proposes imitating market-oriented solutions from private franchise chains to increase the service quality offered by transport operators, solutions that include the threat of losing rents or quasi-rents to stop franchisee opportunism. The study bases its arguments on the complementarities between different control mechanisms and the similarities between franchise and concession contracts. Similarly, the paper proposes linking the renewal of concession contracts to the administrative reputation of operators (measured by customer feedback on service quality). The study also provides details on the implementation of such an incentive system.

Research highlights
► Including incentives in contracts boosts the performance of transport operators.
► An incentive system add value by reducing the opportunist behaviour.
► The franchising model is recommended formula for including incentives and rewards.
► Franchising promote reputation and make the duration of concession less significant.