Bus and Truck Deregulation in Chile 89 Robert T

l sS L~~~~~~~~~~~~~o Public Disclosure Authorized 5} 0t~~~~~~I] ' Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized Regulatory Reform in Transport: Some Recent Experiences A World Bank Symposium Regulatory Reform in Transport: Some Recent Experiences edited by Jos6 Carbajo The World Bank Washington, D.C. © 1993 The International Bank for Reconstruction and Development/THE WORLD BANK 1818 H Street, N.W., Washington, D.C. 20433,U.S.A. All rights reserved Manufactured in the United States of America First printing April 1993 Second printing November 1995 The findings, interpretations, and conclusions expressed in this study are entirely those of the authors and should not be attributed in any manner to the World Bank, to its affiliated organizations, or to members of its Board of Executive Directors or the countries they represent. 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The complete backlist of publications from the World Bank is shown in the annual Index of Publications,which contains an alphabetical title list and indexes of subjects, authors, and countries and regions. The latest edition is available free of charge from the Distribution Unit, Office of the Publisher, The World Bank, 1818H Street, N.W., Washington, D.C. 20433,U.S.A., or from Publications, The World Bank,66, avenue d'lIna, 75116Paris, France. Acknowledgments Thanks are extended to Barbara Koeppel for her valuable assistance in the editing of this document, and to Esra Bennathan for his constructive comments and advice. Thanks also to Tracee Graham and Barbara Gregory who provided excellent secretarial support in preparing this volume for publication. Library of Congress Cataloging-in-Publication Data Regulatory reform in transport: some recent experiences / edited by Jos4 Carbajo. p. cm. Includes bibliographical references. ISBN 0-8213-2331-8 1. Transportation and state-Developing countries-Case studies. 2. Transportation-Developing countries-Deregulation-Case studies. 3. Transportation-Deregulation-Case studies. 1. Carbajo, Jose, 1958- . II. International Bank for Reconstructionand Development. HE148.5.R45 1993 338'.068-dc2O 93-16712 CIP v Foreword The markets for transport services have been costs of correctingthem via governmentinterven- traditionallythe subject of governmentregulation tion and public ownership. Two interrelated and public ownership. Rate regulation in the issues are at the center of the debate: whether railways, entry restrictionsin the trucking indus- govermmentintervention is better than the absence try, minimum levels of service for urban buses of any intervention; and if some regulation is and cargo reservationfor shippingare examples necessary, what should be the scope and content of regulatorycontrols on transport that have been of such regulation. This debate is particularly promotedin many circumstancesworldwide. The relevant for developing countries where the economicmodel that supports such regulationsin inefficient delivery of transport services is a all transport modes has been based on the belief major obstacle to productivity growth and the that, under some circumstances,private markets improvement in the quality of life. Equally fail to provide transport services in the most important, the regulatoryreform of the transport efficient manner. Theoretically,this same model industries is directly related to the efficient takes for granted that governmentintervention is provision, operation and management of infra- flawless. It is not at all clear, however, that the structure. The analyses and case studiesincluded government cure works better than the private in this volume, both by practitioners and schol- market illness. The belief that governmentinter- ars, provide an account of both issues as they vention may produce more welfare losses than the present themselvesworldwide. absence of any interventionhas been the driving force behind the movement for reform in transport which started in the late 1970s. The contri- Louis Y. Pouliquen butions in this volume attemptto capturethe most Director important aspects of that regulatory trade-off Transportation,Water and Urban Development between the social costs of marketfailure and the Department,World Bank vgi Contents Foreword v Contributors viii Introduction and Summary 1 Jose Carbajo 1. Regulatory Reform of Transport 6 Thomas Gale Moore 3. Deregulation of Shipping: Lessons from Chile 19 Esra Bennathan 4. The Evolution of Railroad Regulation in the United States 31 Louis Thompson 5. The Recovery of the Railroad in Uruguay 45 Juan Berchesi 6. Bus Deregulation in the United Kingdom 50 Stephen Glaister 7. Transit Bus Privatization and Deregulation Around the World: Some Perspectives and Lessons 71 John R. Meyer and Jose A. G6mez-lbdflez 8. The Political Framework of Regulatory Reform of Transport Enterprises: Bus and Truck Deregulation in Chile 89 Robert T. Brown 9. Trucking Deregulation in Mexico 101 Arturo Ferndndez 10. The Case of Trucking in Sub-Saharan Africa: What Deregulation? 106 Alain Bonnafous wii Contributors Esra Bennathan StephenGlaister Transportation, Water & Urban Development Reader, The London School of Economics and Department, The World Bank Political Science, London, U.K. Juan Berchesi Jos6 A. G6mezIhbfiez Administracionde los Ferrocarriles del Estado, Professor, Harvard University, Boston, Massa- Uruguay chusetts Alain Bonnafous John R. Meyer Laboratoire d'Economie des Transports,Lyon Professor, Harvard University, Boston, Massa- Robert T. Brown chusetts Economic Commission for Latin America and the Thomas G. Moore Caribbean Professor,Hoover Institution,Stanford University Jose Carbajo Louis Thompson Economist, Transportation, Water & Urban Railways Adviser, Transportation, Water & DevelopmentDepartnent, The World Bank Urban Development Department, The World Arturo Fernandez Bank Secretaria de Comercio y Fomento Industrial, Mexico l Introduction and Summary Jos6 Carbajo Functional failure is the classic economic ratio- tion improves the allocation of resources. That nale for government intervention in markets. test is the starting point of recent regulatory Market failure is the inabilityof private markets reforms, includingprivatization. If the case for to provide certain goods or services even though regulation was based on perceived market fail- provision is economicallyjustified, or to provide ures, the argument for deregulation focuses on them in the most efficient manner. Its various regulatory failure. Regulatory failure occurs causes are imperfect information among market when the outcome of trying to address market agents, the presence of externalities, imperfect failures is inferior to that achievable in the ab- competition,or the existenceof increasingreturns sence of regulation (Bradburdand Ross, 1991). to scale. Government market intervention may An example is regulatory "capture:" when regu- be direct-the legislation and administrative lators adopt the regulated firms' objectives as regulationof prices, qualityof service, entry, and their own. Regulatory inefficiencies, in turn, exit-or indirect, in the form of antitrust regula- arise in the form of a "wrong" amount of regulation intended to control firms in the unfettered tion, or when regulationsare not implementedin exerciseof their market power. the least costly way. In developed and developing countries, the Overall, there is a regulatorytrade-off between markets for transport services have been a tradi- the social costs of market failure and the costs of tional subject of public control, going well be- correctingthem via regulation, and the contribu- yond the regulationsthat have health and safety tions in this volume attempt to capture the es- for their motives. Rate regulation in the rail- sence of this trade-off as it presents itself in ways, entry restrictionsin the trucking business, different transport markets, in developing and minimum levels of service for urban buses, or developedcountries. They range from an analy- cargo reservationin shippingare but some exam- sis of the evolutionand reform of regulation in ples of the myriad of regulatory controls on industries that have often been researched (such transport which have been promoted in the name as U.S. railroads and trucking)to the examination of the public interest. The overall effect of such of recent deregulationin less well knownmarkets economic regulations depends on a variety of (Chilean shipping). This has also been the factors (Joskow and Rose, 1989):the motivation opportunity for comparing different regulatory for regulation, the nature of regulatory instru- reforms in the same market worldwide, as in the ments and the structure of regulatoryprocesses, case of the urban bus industries of the U.K. and transport market characteristics,and

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