Ceris-Cnr, W.P. N° 2/2002

some extent the inefficiency differentials among companies can be due to differences in
the commercial speed levels. These latter contribute to determine what Gagnepain &
Ivaldi (1998) called intrinsic inefficiency of a network and can seriously undermine the
efficacy of incentive regulatory policies. In view of the evidence found for the operators
facing very low commercial speed levels, if the exogenous operating conditions become
too unfavorable, then fixed-price subsidization mechanisms are less successful
instruments for recovering efficiency.
These findings provide useful guidelines for the policy interventions concerning
local mobility. Significant reductions of x-inefficiency can be achieved by introducing
fixed-price schemes of subsidization, and the ongoing reform correctly moves towards
this direction. A proper definition of quality and cost standards is requested, so that the
service contract between local authority and LPT operator gives the manager the
incentives to optimize the allocation of productive resources. Our results also underline
the impact of network characteristics and confirm the importance of local traffic
regulation, already stressed by Fraquelli et al. (2001b). In fact, a more flowing mobility
for LPT vehicles would have positive effects on both the technology (higher
commercial speeds lower the minimum-cost frontier) and the x-efficiency levels (higher
commercial speeds move firm performances closer to the best-practice behavior). This
could be pursued, for instance, by acting on factors such as the re-allocation of existing
road space away from private vehicles towards public passenger transport (e.g., reserved
lanes for trams and buses, restrictions on parking and traffic of cars and taxis), or the
provision of incentives for the use of public modes (e.g., good intra- and inter-modal
timetable coordination, introduction of multi-modal travelcards).
In conclusion, there is a scope for transport policy to increase cost efficiency of
Italian LPT companies. Efforts have to be intensified in the twofold direction of
replacing cost-plus subsidization mechanisms with high-powered incentive schemes as
well as improving exogenous operating conditions of the network. Indeed, a peculiarity
of our study is to highlight the complementarity between the effects exerted by these
two instruments. Local authorities will have to define the proper mix of interventions
according to the specific regulatory framework and environmental factors faced by
single LPT firms.

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