Document de travail

Welfare Tradeoffs in U.S. Rail Mergers

Marc Ivaldi et Gerard J. Mccullough


The renegotiation of regulatory contracts is known to prevent regulators from achieving the full commitment efficient outcome in dynamic contexts. However, assessing the cost of such renegotiation remains an open issue from an empirical viewpoint. To address this question, we fit a structural principal-agent model with renegotiation on a set of urban transport service contracts. The model captures two important features of the industry. First, only two types of contracts are used in practice (fixed-price and cost-plus). Second, subsidies increase over time. We compare a scenario with renegotiation and a hypothetical situation with full commitment. We conclude that the welfare gains from improving commitment would be significant but would accrue mostly to operators.

Codes JEL

  • L11: Production, Pricing, and Market Structure • Size Distribution of Firms
  • L13: Oligopoly and Other Imperfect Markets
  • L41: Monopolization • Horizontal Anticompetitive Practices
  • L92: Railroads and Other Surface Transportation


Marc Ivaldi et Gerard J. Mccullough, « Welfare Tradeoffs in U.S. Rail Mergers », TSE Working Paper, n° 10-196, 8 septembre 2010.

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Publié dans

TSE Working Paper, n° 10-196, 8 septembre 2010