A theory of deregulation in public transport

Abstract

This paper builds a theory of deregulation and roll-out of on-road competition in the public transport sector. Focusing on the dimensions of competition, ownership and authorisation, we identify five distinct regulatory regimes: public monopoly, regulated monopoly, unregulated monopoly, outsourcing and competition in the market. Our generalised theoretical framework allows for the direct comparison in the social welfare terms of the monopolies’ outcomes and the fragmented market structure with endogenous entry. We formulate a set of parameter restrictions that make competition in the market preferable to public monopoly and outsourcing. We also show the theoretical possibility of a ‘revised’ regulatory cycle forming a sequential transition between these identified regulatory regimes. Our theoretical predictions shed some light on the reasons for policy reversals and the bypassing of certain phases of the cycle, that can occur due technological advances, changes in fiscal constraints and institutional capacity improvements.