Transaction cost economics of procurement models in public transport: An institutional perspective

Document Type

Journal Article

Publication Date


Subject Area

mode - bus, organisation - contracting, organisation - competition


Public transport, Transaction cost economics, Procurement types, Competitive tendering, Istanbul, Weak institutional settings, Authority operator relations, New institutional economics


In recent years, concern has grown over good practices in the procurement processes in public transport. Although promoting competition by competitive tendering to gain efficiency and increase service quality has gradually become common around the world, the applicability of this model in weak institutional environments has some uncertainties. Drawing from new institutional economics (NIE) literature, transaction cost economics (TCE) approach presents important theoretical insights to comprehend the nature of authority and operator relations by underlining the institutional factors that make such procurements effective or not. We argue in this paper that the extent to which transaction structures are embedded in the institutional framework has a substantial impact on the long-run performance of the public transport contracts. A case study of the experience of Istanbul's public bus transport system, a hybrid regime combining the elements of direct award and tendering and composed of both formal and paratransit transport modes, is proposed to support our theoretical arguments. Our study reveals that all-encompassing contractual solutions which do not take into account the broader institutional environment (culture, norms, policy preferences, property rights etc.) may not work as intended, calling for more hybrid solutions, particularly in weak or developing institutional settings.


Permission to publish the abstract has been given by Elsevier, copyright remains with them.


Research in Transportation Economics Home Page: