The present article discusses economic issues related to the design of optimal regulatory contracts on the example of the urban public transport industry. It highlights the importance of the design of efficient regulatory contracts in the context of changes facing the urban transportation industry in the European Union.
Furthermore, it provides an overview of the main issues put forward in economic literature related to the design of regulatory contracts. It discusses several problems relevant in this context such as informational asymmetries, transaction costs, and regulatory capture. It also comments on a selection of views presented in economic literature dealing with these issues.
Finally, the article presents the regulatory framework, contractual practices and characteristics of the French urban public transport industry. France is well known for its long standing tradition of contracting between the State and the private sector in transportation. The analysis of the French example may help to prove useful insights in this regard.