ABSTRACT

This chapter draws on the wider literature in economics that explores the role of contracting in the delivery of efficient and effective services, which is very relevant to the passenger transport sector. There is an increasing interest in the type of contracts that govern transactions between regulators and public transport operators amongst transport researchers. The use of performance-based contracts (PBCs) is designed to enhance operator performance via incentives (such as patronage growth and service enhancements). PBCs have been suggested as a contract form more likely to deliver an efficient outcome than the prevalent fixed-fee or cost-plus approaches. Such contracts therefore are partly designed to replicate the rewards that would be found in a free market. However, the use of PBCs in public transport has been limited to a few countries such as Norway, New Zealand and Australia.