This paper examines the recently introduced performance-based funding system for English local transport authorities, using game theory to help analyse: how the overall structure of the system incentivises the players; how the detailed features of the system affect its incentive properties and its effectiveness; and what alternative incentive systems might be considered by a government department wishing to achieve the best possible performance at local level. The researchers’ initial task was to understand and document the real game as it is currently played, and this was done with the assistance of interviews with key individuals in the Department for Transport and English local authorities (Kelly et al, 2006). Next, game theory models were reviewed for relevance/applicability, and two possible analogues were found for the Local Transport Plan game: the rank order tournament of Lazear and Rosen (1981) or the rent-seeking contest (Tullock, 1980). Ultimately, Clark and Riis’ (1998) multi-player, multi-prize model of the rent-seeking contest was adopted and the game was solved for the 85 player Local Transport Plan case. Using the results, an analysis is given of the current LTP game, including its overall structure and specific features. Our findings point to the prize structure (how many prizes and how ‘graduated’) as a key issue in the design of optimal incentives in this application. The existence of a ‘level playing field’ for competition between different local authorities is another issue which has a large bearing on the optimal incentive structure – and which DfT has given attention to in practice. Finally, we assess alternative possible incentive structures in the paper, including their possible application to the LTP game and the conditions under which the game theory work suggests they are most likely to be successful.
CORE (COnnecting REpositories)
CORE (COnnecting REpositories)