This paper discusses the potential use of a theoretical regulatory instrument in a setting where the individual choice of quality have spill over effects on other individuals. This instrument is called the compensation mechanism. The analysis is carried out in a specific rail set-up, where quality causes delays, which those suffering from the delays are not compensated. The compensation mechanism ensures an optimal choice of quality by the rail operators without having an outside regulatory body setting standards or levying externality taxes. The paper discusses some relevant issues in relation to a practical use of such a decentralized incentive based scheme.
|Title of host publication||Proceedings from 10th World Conference on Transport Research|
|Publication status||Published - 2004|
|Event||10th World Conference on Transport Research Society - Istanbul, Turkey|
Duration: 4 Jul 2004 → 8 Jul 2004
Conference number: 10
|Conference||10th World Conference on Transport Research Society|
|Period||04/07/2004 → 08/07/2004|