Application of the efficiency concept in this study

perspective

This study tried to identify social utility improvement potential in local public transportation and is situated therefore in the tradition of welfare economics. The welfare maximum will be realized when the service is produced in the most efficient manner. When investigating local public transport, it becomes obvious that four different players are usually involved in the service overall. First, there is a decision- making body that acts as a purchaser on behalf of the users (LeGrand, 1993) and decides how much money is available for the support of public transport. As a political institution, the same unit also decides how the whole service is organised, what shall be within the responsibility of the administration, and what shall be given to outside companies. It also acts as a purchaser in the quasi-market and pays the subsidies. As a result, the question of which way is most efficient to organise local public transport is central.

Another task for the public authorities is to invoke a coordination unit that takes care of the official proceedings, like running the competition and evaluating the performance of the operator (Challis et al., 1994). The planning unit reveals the demand and defines the level of service and may also be part of the administration/purchaser. As an alternative, the planning unit may be integrated into the operator, who represents the second group. The operators run the service after they obtain permission to do so. They produce a defined amount of service with a certain quality. Their management follows their company's own interests, such as ensuring the survival of the company, and in case they are private, is also profit

maximizing. The operator employs the workforce, the third group. These employees prefer a stable job, good salary and bonus benefits, and a low stress level. It may make a difference to them if their employer is public or private, depending on how their basic interests are realized. Finally, there are the users for whom the service is organised. Users like good quality and low prices. Basically, they do not care how the transportation is organised, if there is a competition, or if the operator is public or private. The quality and the price level may be affected by the organisation factor, so the purchaser tries to make the organisation neutral to the customer by defining service-quality standards.

Since several distinguishable actors with distinct tasks and interests are involved, evaluating the efficiency of each unit and the interactions between them is feasible (see, for example, Williamson, 1985; North, 1986; Challis et al., 1994). In order to assess potential inefficiencies, the organisation of the service needs to be regarded.

Each of the players and each interaction are checked for potential inefficiencies in each of the regimes in question, and how these inefficiencies can be avoided is discussed. For example, one question is how the contract between the purchaser and provider can be optimized. This approach is called institutionalizing. The following players are involved: the purchaser (+planner), the operator’s management (+planner), and the employees and the customer. In order to assess potential inefficiencies, the organisation of the service needs to be regarded. There are several players involved in the provision of transportation, so efficiency needs to be applied to all players.

The table below shows relations and details that are “relevant” in the sense that the organisation method will likely affect the relationship and the efficiency of the players. Other relations are marked “constant.” The question was whether the efficiency of an actor or the interaction of two actors is influenced by the decision of the market organisation and ownership. The answer is "relevant" for the relationship between the purchaser and provider because there is a higher need for coordination and inflexibility within the contract between the two parties in the quasi-market compared to the hierarchical system. Above that, there is a difference if the operator is from the same house or private regarding, for example, information flow. The answer is irrelevant or “constant” for the relationship between the purchaser and the customers. The city tries to find an optimal balance of subsidies and service level for the customers, regardless of how it is organised (the shift from the administration calling the customer “a transportation case” towards “user” or

“customer” took place before the quasi-market changes, see also below). In the categories where two identical groups are matched up, the question is if there is an

internal effect to the actor, such as a shift of targets or behaviour. For example, the provider acts differently in a monopoly than in a competition. On the other hand, the purchaser does not.

Fig. 2: Actors influenced by alternatives in market organisation and ownership, own scheme

Purchaser User Provider Employee

Purchaser/Administration Constant Constant Relevant Constant

User/Customer Constant Constant Constant

Provider/Operator Relevant Relevant

Employee/ Worker/Personnel Relevant

Each of the players and each interaction are checked for potential inefficiencies in each of the regimes (see Fig. 1) in question, and it is discussed how these inefficiencies can be avoided or at least reduced. For example, one question is how the contract between the purchaser and provider can be optimized. This approach is called institutional. Additionally, when defining efficiency, it is necessary to think about how to measure it. It appears that the problem of measurement of the sub- definitions cannot be solved (see Chapter 3), so it is only sought where there are potential inefficiencies, and it is considered how these inefficiencies can be negated.

There are certainly downsides to this approach; for example, it is difficultto compare gains in one efficiency category to losses in another.

Below in Fig.3 is an overview of the research setting, the use of theoretical concepts, and their integration into the case study.

Fig 3 shows an overview of the use of the theoretical concepts and how they integrate into the study. The institutional perspective identifies institutions and actors as the subject of research (Chapter 2.3). Actors are identified as the city,

In stitu tional Per spe ctiv e N ew I n stitu tional Ec onomic s Ef fi cien cy

AllocativeProductiveLeibenstein’s X

Pareto Property RightsTransaction Costs

Public ChoiceContractingHistory Institutions + Actors

Ownership andMarket Organisation

QM1 2 3 CityOperatorWorkersUsers

QM1 + Actors

QM2 + ActorsQM3 + Actors

QM1 vs. QM2 vs. QM3+Actors + Actors + Actors Transaction CostsBounded Rationality

Quasi-Market Cases

Comparison

2.3 2.2 2.1

5.1f f

5.4

Reasons for Inefficient Behaviour

Fig.3: Use of Theoretical Concepts and their Integration

operator, employees, and users. The contract, as an essential component of the quasi-market, is one institution; ownership and market organisation are the other two that altogether form three different alternatives as follows: public monopoly, private monopoly, and competitive tendering. These institutions and actors are, by the definition of New Institutional Economics (Chapter 2.2), challenged in their efficient functioning and behaviour in a number of ways. These theoretical concerns by NIE with their efficiency characteristics are discussed and explained in Chapter 2.1.

The practical impact of NIE efficiency concerns is investigated in cases 5.1–5.3.

Each organisational approach is studied for inefficiencies of the institution and the actors according to New Institutional Economic Theory. These practical results are then compared in case 5.4 using transaction costs as a systemic challenge and bounded rationality as an actor-bound challenge.

3. Methodological choice for a qualitative case