TIPP

Transport Institutions in the Policy Process

THEORETICAL AND PRACTICAL APPROACHES TO INSTITUTIONAL ANALYSIS

Deliverable 2

Final version

2 February 2004

(Last revision 1 April 2004)

Authors:

Tony May, Bryan Matthews, Robin Lindsey, Andre de Palma, Andreas Matthes, Tina Seidel, Bernhard Wieland, Johanna Kallioinen, Paavo Moilanen

ITS, ADPC, TUD, STRAFICA

Contract No: GMA2/2001/52043 S07.15419 TIPP Project Coordinator: Strafica Ltd, Finland

Funded by the European Commission

5th Framework Programme – DGTREN

Project: Transport Institutions in the Policy Process (TIPP) Contract: GMA2/2001/52043 S07.15419 TIPP Programme: Fifth (EC) RTD Framework Programme /

”Competitive and Sustainable Growth” Deliverable: 2 Title: “Theoretical And Practical Approaches To Institutional Analysis” Authors: Tony May , Bryan Matthews, Robin Lindsey, Andre de Palma,

Andreas Matthes, Tina Seidel, Bernhard Wieland, Johanna Kallioinen, Paavo Moilanen

Date: 2 February 2004, Last revision 1 April 2004 Status: Accepted by the Commission 23 April 2004 Availability: Public

TIPP Consortium:

Strafica Ltd (STRAFICA), FI, Coordinator University of Leeds/

Institute for Transport Studies (UNIVLEEDS), UK Athens University of Economics and Business/

Transportation Systems and Logistics Laboratory (RC/AUEB), GR Berlin University of Technology/

School of Economics & Management (TUB), DE ADPC Sprl (adpC), BE Economic and Social Institute/

Free University Amsterdam (ESI), NL Dresden University of Technology (TUD), DE Katholieke Universiteit Leuven/

Centre for Economic Studies (KULeuven), BE Budapest University of Technology and Economics/

Department of Transport Economics (BUTE), HU

Further Information:

Website: http://www.strafica.fi/tipp

Contact Person: Mr Paavo Moilanen (Project Manager) Strafica Ltd Luutnantintie 5F, FIN-00410 Helsinki tel +358 9 350 81 212 fax +358 9 350 81 210 email:paavo.moilanen@strafica.fi

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Table of Contents Executive summary....................................................................................................................4 1. INTRODUCTION .............................................................................................................7

1.1 Objectives ..................................................................................................................7 1.2 The approach adopted in the project ..........................................................................8 1.3 Structure.....................................................................................................................9

2. INSTITUTIONS AND THE DIMENSIONS OF TRANSPORT POLICY ....................10 2.1 Introduction..............................................................................................................10 2.2 Objectives ................................................................................................................11 2.3 Policy Instruments ...................................................................................................14 2.4 Barriers.....................................................................................................................15 2.5 Actors.......................................................................................................................16 2.6 Decision-making structures .....................................................................................19 2.7 Decision-making and implementation processes.....................................................21

3. APPROACHES TO INSTITUTIONAL ISSUES ...........................................................23 3.1 Introduction..............................................................................................................23 3.2 Game theory.............................................................................................................23 3.3 Institutional economics ............................................................................................25 3.4 Regulatory theory.....................................................................................................28 3.5 Public choice theory.................................................................................................29

4. PERCEIVED LEGITIMACY OF INSTITUTIONS AND POLICIES...........................31 4.1 Introduction..............................................................................................................31 4.2 Critique of prototypes of the positive theory of regulation......................................32 4.3 Psychological Aspects of Public Policy...................................................................36 4.4 Towards a psycho-economic model of political acceptability.................................37 4.5 Institutions in sociology...........................................................................................41 4.6 Positioning TIPP within the institutional research in economics, sociology and psychology ...........................................................................................................................42

5. SUGGESTED FRAMEWORK .......................................................................................44 5.1 Towards an analytical framework............................................................................44 5.2 Issues, responses and problems................................................................................47 5.3 Hypotheses...............................................................................................................48 5.4 Theories....................................................................................................................50 5.5 Conclusions and recommendations..........................................................................50 5.6 The matrices.............................................................................................................51

6. CONCLUSIONS AND RECOMMENDATIONS ..........................................................63 7. BIBLIOGRAPHY............................................................................................................64

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EXECUTIVE SUMMARY

The specific objectives of TIPP are: 1. to provide a comprehensive and in-depth picture of institutional constraints to

implementing transport policy throughout Europe; 2. to develop an approach for studying institutional implementation issues by combining

elements from the positive theories of regulation, public choice and federalism with the standard normative welfare economics approaches;

3. to provide theoretical and empirical results and concrete policy conclusions regarding the implications and impacts of different organisational and regulatory constraints and settings;

4. to provide results regarding the role and impacts of the subsidiarity principle in reaching the objectives of Common Transport Policy (CTP); and

5. to make suggestions for possible combinations of member states’ and European actions that would best facilitate the implementation of transport policy.

This Deliverable is principally focused on objective 2 above, and is based on WP2 of the project, whose objective has been to provide the necessary theoretical foundation for the analysis of the implementation problems of transport policy. The work package has involved four specific tasks. In Task 2.1 we have identified and defined the key elements and dimensions of transport policy with regard to its implementation. In Task 2.2 we have identified and elaborated relevant approaches to the analysis of institutional issues, drawing on four key groups of theory. In Task 2.3 we have tried to discuss the positive theory of regulation and the theory of interest groups from a perspective that synthesises economics and psychology, addressing issues of acceptability, credibility and legitimacy which reflect on some of the theories identified in Task 2.2. In Task 2.4 we have drawn these strands together to provide an initial theoretical foundation and framework for the work in later work packages. This framework will contribute to all of the other objectives above by:

• providing a taxonomy of institutional constraints against which the comprehensive picture can be developed (objective 1);

• providing the theoretical approach against which policy conclusions can be drawn (objective 3);

• providing a structured approach to addressing the issue of subsidiarity (objective 4); and

• through its input to all of these providing the underpinning structure for the proposals in objective 5.

Section 1 outlines the approach adopted, which drew on the recommendations from Deliverable 1. As agreed there, the approach has been a positive one, of trying to understand what is happening, and what the implications are, as a basis for subsequently recommending actions which might be taken. We have therefore avoided trying to specify, in a normative sense, what should happen. In Section 2 we consider the institutions and dimensions of transport policy. The coverage is structured as follows:

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• objectives; • policy instruments; • barriers; • actors; • decision-making structures; and • decision-making and implementation processes.

For each of these dimensions we have reviewed the existing literature to develop a taxonomy of key attributes, which are then used as the basis for the framework developed in Section 5. In some cases the literature is strongly focused on one sector such as urban transport or pricing. Where this has arisen we have assessed carefully whether the resulting taxonomies are more widely applicable. This is an issue to be tested in the case studies in later work packages. In Section 3 we review the literature on the theories relevant to the performance of institutions. We have categorised these under four headings:

• game theory; • institutional economics; • the normative and positive theories of regulation; and • the theory of public choice.

For each theory we have assessed critically the sub-theories, and the conflicting arguments on their appropriateness and applicability. We have concluded each review with an assessment of the strengths and limitations of the theory. As a generality we have concluded that game theory has particularly wide applicability and underpins many of the other theories. However all of the theories are of potential relevance to infrastructure, regulation and pricing instruments, and to the resolution of public acceptability barriers. In Section 4 we lay the theoretical foundation for a model of political acceptability of transport policies and institutions from a viewpoint that combines psychology and elements from the positive theory of regulation (a model to be further developed in Task 4.1). First, a critique is presented of the economic perspective of the functioning of institutions and policies, in particular focusing on various prototypes of the positive theory of regulation, and their lack of institutional and in particular psychological considerations. Secondly, a summary is provided, from a psychological point of view, of theoretical approaches and empirical evidence relating to public reactions towards transport policies, and in particular transport pricing. We then consider the development of a ‘psycho-economical model’ of political acceptability. Finally we consider briefly the application of sociological theories. In Section 5 we have outlined an analytical framework for the conduct of the remainder of the project. This starts with the dimensions and elements from Section 2, and uses them to check the coverage of the case studies, and the national surveys and case studies subsequently to test the completeness of those dimensions and elements. The dimensions are then used to identify the possible issues, responses and problems which might arise in the pursuit of a particular policy by a given actor working within a given decision-making structure and processes. An illustration of how this is done is given, using a hypothetical case study of service level improvements in an urban area. These potential issues, responses and problems are then further checked against the national surveys.

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The identified issues, responses and problems are used in turn to specify a series of hypotheses to be tested in the case studies. These hypotheses are in turn reinforced by reference to the underlying theories reviewed in Sections 3 and 4. Again, this process is illustrated with the case study of service level improvements. A priority set of hypotheses is then agreed and tested in the case studies. While not central to the objectives of the project, this also provides an opportunity to assess the relevance of the underlying theories. Finally, the hypothesis tests are compared across case studies and sets of case studies, and used to formulate a set of conclusions. These in turn are assessed against the identified elements of decision-making structures and processes to develop recommendations for changes in institutional structures and in institutional governance. We have included a set of matrices developed in the course of the work package which help illustrate the interactions between dimensions, theories and case studies. We have then provided a set of twelve questions to be answered at appropriate stages in the project. We conclude with brief recommendations on the application of this analytical framework within subsequent work packages.

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1. INTRODUCTION

1.1 Objectives

The specific objectives of TIPP are: 1. to provide a comprehensive and in-depth picture of institutional constraints to

implementing transport policy throughout Europe; 2. to develop an approach for studying institutional implementation issues by combining

elements from the positive theories of regulation, public choice and federalism with the standard normative welfare economics approaches;

3. to provide theoretical and empirical results and concrete policy conclusions regarding the implications and impacts of different organisational and regulatory constraints and settings;

4. to provide results regarding the role and impacts of the subsidiarity principle in reaching the objectives of Common Transport Policy (CTP); and

5. to make suggestions for possible combinations of member states’ and European actions that would best facilitate the implementation of transport policy.

This Deliverable is principally focused on objective 2 above, and is based on WP2 of the project, whose objective, as specified in the Description of Work, has been to provide the necessary theoretical foundation for the analysis of the implementation problems of transport policy. The work package has involved four specific tasks. In Task 2.1 we have identified and defined the key elements and dimensions of transport policy with regard to its implementation. In Task 2.2 we have identified and elaborated relevant approaches to the analysis of institutional issues, drawing on four key groups of theory. In Task 2.3 we have tried to discuss the positive theory of regulation and the theory of interest groups from a perspective that synthesises economics and psychology, addressing issues of acceptability, credibility and legitimacy which reflect on some of the theories identified in Task 2.2. In Task 2.4 we have drawn these strands together to provide an initial theoretical foundation and framework for the work in later work packages. This framework will contribute to all of the other objectives above by:

• providing a taxonomy of institutional constraints against which the comprehensive picture can be developed (objective 1);

• providing the theoretical approach against which policy conclusions can be drawn (objective 3);

• providing a structured approach to addressing the issue of subsidiarity (objective 4); and

• through its input to all of these providing the underpinning structure for the proposals in objective 5.

The related objective for WP2 seeks “a sound theoretical foundation and framework for the empirical analyses in the later work packages”. It should be noted that it was not intended that it should conduct empirical work on the problems of implementation. Early consideration is given to this, in WP3 on current institutional systems in Europe. Further analysis will be a task for the subsequent case studies. While we hope that the proposals in this Deliverable do meet this objective, it will be important for the work of later work

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packages to assess it critically and, if necessary, suggest variants to it. This will be a key issue for WP7. The framework developed in this Deliverable should be treated, therefore, as a working document for the project, rather than a final and transferable structure. Depending on the results of WP7, it may be appropriate to consider revising it in a final form at the end of the project.

1.2 The approach adopted in the project

Deliverable 1 has already made significant progress in formulating this framework and foundation. Figure 1 reflects the structure as then envisaged. The Deliverable distinguished between organisations: the groups of actors, and institutions: the socially devised rules and constraints within which they work. Organisations and institutions are the basic elements on which the planning and implementation frameworks (structures, policy processes) are based. These frameworks formulate and implement policies and instruments. This is affected on the one hand by policy goals or objectives, and on the other hand by barriers and constraints. Planning and implementation frameworks set up policy goals and can affect barriers and constraints. All these (causal) relationships are shown by arrows. Of course, in real life, dynamic as it is, there are also feedbacks and two-sided interactions between these elements which are not shown in this streamlined picture.

Figure 1. Logic of discussion

Deliverable 1 also conducted an initial review of the theories available, which formed a starting point for the reviews in WP2.

As stressed in Deliverable 1, our approach in TIPP is a positive one, of trying to understand what is happening, and what the implications are, as a basis for subsequently recommending actions which might be taken. We are not, therefore, at this stage, trying to specify, in a normative sense, what should happen. However, some of the work on which we have drawn in Task 2.1 is more normative in nature. We have used these normative recommendations of

Policy goals

Planning and implementation

frameworks

Organisations and institutions

Policies and instruments

Barriers and constraints

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others as a basis for a series of checklists of what might actually be happening, rather than, in any way, suggesting that if a particular approach is not adopted the actors are in some way at fault.

1.3 Structure

In the course of the work package we have produced three task reports, on Tasks 2.1, 2.2 and 2.3 as internal source documents. We have not attempted to reproduce these in full here, and the interested reader may wish to explore the more detailed material in them. This Deliverable acts also as the task report for Task 2.4. The Deliverable is structured as follows. In sections 2, 3 and 4 we summarise in turn our conclusions on each of Tasks 2.1, 2.2 and 2.3, and their related task reports. In section 5 we draw these strands together into a suggested framework for future work in this area and more specifically for the analysis of the case studies in WPs 4, 5 and 6, and provide a set of questions which should be addressed in those case studies. In the final section we draw conclusions and make recommendations for actions later in the project.

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2. INSTITUTIONS AND THE DIMENSIONS OF TRANSPORT POLICY

2.1 Introduction

The aim of Task 2.1 was to identify and define the key elements and dimensions of transport policy with regard to its implementation. As noted above, our investigation of institutions within the TIPP project will be based on an analysis of ‘what is’ rather than ‘what ought to be’, and this was the basis of our approach to identifying the dimensions of transport policy in this task. Friedman (1953) argues that the goal of a positive science is to develop a valid and meaningful theory and that such a theory is, in part, a “language designed to promote systematic and organized methods of reasoning … [and] in part a body of substantive hypotheses designed to abstract essential features of complex reality” (Friedman, 1966). The language of theory serves as a kind of filing system to enable the organisation of empirical material so as to facilitate our understanding of it. We interpreted Task 2.1 as a first attempt to set out this filing system – the language of the analysis of transport institutions and the policy process, to be added to in Tasks 2.2 and 2.3, and to be tested within the TIPP case studies. Our approach in this task has involved developing a description and categorisation of the existing transport policy environment and practices with regard to the formulation and implementation of transport policy. That is, a language that relates to how transport policy ‘is’ developed and implemented, rather than how it ‘ought to be’ developed and implemented. This language can then be used as a means of structuring the analysis of institutional problems of policy-making. The dimensions, and elements within each dimension, which we identify within this chapter are offered as a suggested set based on the literature, for further testing in Workpackage Three and subsequently in the case studies. Much of our thinking has been shaped by our involvement in PROSPECTS, which undertook a review of transport policy decision-making, and SPECTRUM, which undertook work to define aspects of transport policy. In addition, we continue to build on this experience with reference to the wider literature. In the Description of Work, it is suggested that the key dimensions include:

• the range of problems addressed (vs. other problems to be taken care by other policies); • the objectives (an efficient and in all respects well functioning transport system); • policy instruments used or available by mode and country; • key players on the different levels of policy-making (different decision-making governing

bodies – cities and regions and other organisations); • institutional arrangements for the implementation of policy including the decision-making

processes and levels of policy-making (local, regional, national, European) and • the question to what extent policy implementation should involve actors from the private

sector. The rest of this report covers these, adds to them and re-structures them, in the following sections:

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• objectives • policy instruments • barriers • actors • decision-making structures • decision-making and implementation processes. The first three of these correspond to elements of policy, while the second three are concerned with process.

2.2 Objectives

The objectives, or goals, to be pursued form a key dimension of transport policy. When those responsible for transport policy state a set of objectives, they define the direction to be taken by transport policy, which includes imposing constraints with regard to what transport policy should avoid, and they provide a benchmark against which to measure the success of transport policy, both in terms of appraisal and monitoring. In addition, a set of objectives can help to identify the problems to be overcome and the types of solutions that might be appropriate.

Whilst TIPP is not concerned with what objectives ‘should’ be adopted, it is concerned with the institutional conditions that determine objectives and make their achievement possible. Also, implementation problems may sometimes be traceable back to objectives, e.g. where true objectives are unclearly expressed or where divergent and even contradictory objectives are pursued at different levels of government. Hence, in the first instance we consider policy objectives from a positive perspective, i.e. we focus on explaining which policy objectives are adopted in different settings.

An obvious first step is to categorise different types of objectives. Deliverable One distinguished between three types:

− abstract or pure ("upper level") objectives; − transport specific ("lower level") objectives; and − general cross-sectoral policy objectives. Given significant inter-country differences it is recognised that it is extremely difficult to synthesise a unique set of transport specific objectives that adequately relate to different countries throughout Europe. Despite this, Deliverable One provided a suggested set of objectives and our review of the existing literature and research in this respect has sought to build on this. A major review of EU, national and local policy objectives (SPECTRUM, 2003) suggested that all objectives may be grouped under two ‘main’ objectives; efficiency and equity, as follows. • Economic efficiency

- Economic efficiency in a strict sense; - Environment and health; - Safety and security;

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• Equity1 - Inter-generational equity; - Intra-generational equity; and - Inter-regional equity

In addition, Economic development and Liveability were identified as key objectives to include, though these were not explicitly grouped under either the efficiency or equity headings (SPECTRUM, 2003); whilst they have efficiency and equity aspects to them, they are not exclusively linked to either one or the other.

Table 1 seeks to draw links between objectives identified in different reviews, assesses the degree to which there is agreement amongst the different sets of objectives and comments on this level of agreement. We recommend the use of the SPECTRUM objectives, or a slightly amended version of them, as a check-list within the TIPP theoretical framework.

1 Including social equity - among different social groups - and spatial equity – among different regions.

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Table 1: Comparison of objectives listed in different projects

National objectives

(from SPECTRUM

review)

Local objectives

(from PROSPECTS

review)

National objectives

(from TIPP D1)

SPECTRUM Level of agreement

Comment

Economic efficiency

Economic efficiency

Efficiency Economic efficiency

Complete

Environment Environmental protection

Environment Environment and health

Almost Complete

SPECTRUM includes environment and health together, where as nationally they are separated

Health None Health probably incorporated implicitly within the environment objective

Safety Safety Safety Safety and security

Almost Complete

SPECTRUM explicitly incorporates security within this objective, whilst it is probably included implicitly elsewhere

Regional development

Economic growth

Regional development

Economic development

Almost complete

Regional and urban development are treated separately at the national level, whilst TIPP considers only regional development

Urban development

None Implicitly incorporated within local and SPECTRUM objectives

Liveable streets Liveability Partial Not explicitly included at the national level or within the TIPP objectives, though perhaps incorporated implicitly within Environment and Safety

Equity Equity Equity Equity Complete

Accessibility Accessibility Partial Perhaps some overlap with efficiency and Equity

Quality None Only included within the TIPP objectives

Integration None Only included within the national objectives

Explicit objectives for freight

None Only included within the national objectives

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2.3 Policy Instruments

Transport policy instruments are the means by which transport planners and policy-makers seek to influence the workings of the transport system. Typically, a set of objectives will be identified and a package of policy instruments will then be put together to form the basis of a strategy designed to meet the identified objectives. These principles are at the heart of UK and other government guidance on the development of Local Transport Plans and Strategies (DETR, 2000).

Recognising that there is no ‘correct’ way of categorising policy instruments, in Task 2.1 we reviewed different ways of thinking about policy instruments and identified three possible alternative categorisations from the literature. Firstly, there was a three way division between:

a. regulatory instruments; b. economic instruments; and c. physical instruments.

Secondly, instruments might be divided into four main target areas:

a. market access and competition; b. transport capacity; c. travel demand; and d. externalities.

On reflection, we favour a seven-way categorisation, arrived at following consultations with 60 local authorities across Europe (May, Matthews and Jarvi-Nykanen, 2001) and which has subsequently been used in the on-line Knowledgebase on Sustainable Urban Land-use and Transport (KonSULT). May and Matthews (2001) provide fuller descriptions, and a brief assessment of performance, for most of the 80 instruments which fit within this categorisation. Here, we provide illustrative examples of instruments for each category, as follows:

• Land use measures Policy instruments to influence where homes, workplaces, shops and other facilities are located, including development densities, which involve an increase in density of development throughout an area to reduce the need to travel, and development pattern, including transport corridor-based developments designed to encourage provision and use of public transport.

• Attitudinal and behavioural measures Policy instruments to encourage people to think more about how, when, where and whether they travel, including public awareness campaigns, designed to encourage individuals to use alternatives which reduce overall travel, and travel by car, and flexible working hours.

• Infrastructure provision Policy instruments which add new infrastructure to the transport system, including new road construction and new rail stations.

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• Management of the infrastructure

Policy instruments which make more effective use of the existing infrastructure or the services on that infrastructure, including conventional traffic management, traffic calming measures, public transport priorities and service levels, and the regulation of such services.

• Information provision Policy instruments to enable travellers to make more informed decisions about how, when, where and whether to travel, including variable message signs and real time passenger information.

• Pricing Policy instruments which influence the price which users pay for using elements of the transport system, including parking charges, urban and inter-urban road pricing and public transport fare levels.

• Compensatory measures outside of the transport field These can be very wide-ranging, but include changes in local taxes, changes in business taxes, general subsidies for specific groups and targeted assistance for specific groups, such as payment for double-glazing where there are noise impacts.

There has been growing interest in the last decade in integrated transport and land use strategies, in which combinations, or packages, of measures are used to achieve a higher standard of performance against the policy objectives. Evidence suggests the key reasons for combining measures are: • to reinforce the effect of a measure; • to offset its adverse effects; • to compensate losers; • to increase public acceptability; and • to generate revenue.

2.4 Barriers

A ‘barrier’ is a factor, typically exogenous, that limits or delays the policy-maker’s ability to implement the most desired policy. Verhoef et al (2003) draw a distinction between barriers and constraints, whereby a barrier is societal or practical limitation on what can be done, such as unacceptability, while a constraint is a specific restriction imposed on a policy instrument, such as maximum fare levels.

We propose a four-way categorisation of barriers: • Legal and institutional: lack of legal powers to implement a particular measure, and

legal responsibilities which are split between agencies, limiting the ability of the city authority to implement the affected measure;

• Financial: budget restrictions limiting the overall expenditure on the strategy, financial restrictions on specific measures, and limitations on the flexibility with which revenues can be used to finance the full range of measures;

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• Political and cultural aspects: lack of political or public acceptance of a measure, restrictions imposed by pressure groups, and cultural attributes, such as attitudes to enforcement, which influence the effectiveness of measures;

• Technological – where the appropriate technology required by a particular policy instrument is not available or sufficiently reliable or where current versions of the technology are viewed as unacceptable for financial, environmental or other reasons.

Constraints arising out of these barriers are likely to be specific to the policy instrument in question. In the context of pricing, Verhoef et al (2003) identify the following five constraints: • Coverage and scope of the pricing system; • Composition and level of pricing measures; • Degree of differentiation of pricing measures; • Rules and principles governing revenue-use; • Use of supplementary non-pricing measures. We recommend that case studies examine the four identified barriers, and themselves identify the constraints which the barriers impose within the policy context in question. Further consideration can then be given to the links between barriers, constraints and institutions within Workpackage 7.

2.5 Actors

“Institutions are the humanly devised constraints that structure political, economic and social interaction" (North, 1991). They include informal constraints such as customs, formal rules embodied in law, and organisations in the general sense of the term. It was agreed in D1 that in TIPP the term institution be interpreted in a broad sense, such that it covers both organisations (including their internal structures/relationships) and relationships between organisations. Hence, institutions comprise both organisations and rules which exist in order to reduce uncertainty and transaction costs and to provide stability for socio-economic interaction. Uncertainty is an impediment to effective social and economic interaction, in requiring people, firms or governments to spend resources on predicting and understanding other actors’ behaviour. Actors can save time and monetary costs when the actions of others can be interpreted, and transactions carried out, within established conventions, rules and structures; that is, through institutions common to and commonly known by everybody. In transport, rules range from the formal rules - laws and regulations etc – governing the actions of actors, through to informal rules and conventions that support the construction, maintenance and operation of transportation systems (Stough and Rietveld, 1997). The most important rules governing the actions of actors are identified as being the following: • the legal and regulatory frameworks within which they operate; • their objectives; and • their accountability (form of democracy/public-private sector). However, it is not possible here to identify the wide range of rules and conventions relating to transport policy implementation. There is no research on which to draw upon and we

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suppose that rules might be very context-specific. Therefore, we look to the case studies to identify the relevant rules within each of their particular contexts and propose that this element of the analysis be revisited in the final stages of the project. We can, however, say more about the organisations (or actors)2 involved in the transport policy process. A whole range of actors are involved in the development and implementation of transport policy in Europe. Building on previous work (INRETS, 2000; Milne et al, 2001); and Niskanen et al 2003) we set out in Table 2 our proposal for a comprehensive list of key actors, categorised by their transport policy role. The roles identified are somewhat simplified for the purposes of identifying key roles and responsibilities in relation to the transport policy process. In reality, each actor is likely to take on a variety of roles and to influence other actors to lesser or greater extents. Politicians are identified as the key decision-makers, whilst the role of government institutions – the civil servants and bureaucrats – is to provide information to politicians and to the public and to implement decisions made by the politicians. Government agencies are then one step removed from actual government, and generally have a particular remit and a degree of independence from government; agencies vary widely in their scope and coverage, but in some countries are concerned with regulation and management, whilst in other countries they might actually provide services, so there may be some cross-over between government agencies and transport service providers and infrastructure providers.

2 Deliverable One discussed the notions of organisations, actors and players. Organisations, it was suggested, are collections of persons with a more or less clearly specified set of aims, where as actors are non-organised individuals or groups of people. However, the term actor (or player) can be used to refer to an organised entity when one wishes to emphasise behavioural aspects, whilst the term organisation is more appropriate to use when emphasising organisational aspects. Hence, it was agreed that the terms actor/player and organisation would generally be used as synonyms.

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Table 2: Key Actors in the Transport Policy Process

Actors Sub-dimensions Examples Roles Politicians a International;

national; regional; local

Members of European Parliament and members of the Council of Ministers; MPs; elected members of regional governments and assemblies; city councillors.

Decision-making

b. In government; or in opposition.

Ministers and other members of the executive; committee members and other members of the legislature.

Decision-making/Reacting to policy proposals

c. Political persuasion Conservative; Green; Liberal; socialist

Influencing opinion

Government a. International; national; regional; local.

Responsibility for implementation/Information provision

b. Ministries Responsibility for implementation/Facilitating implementation

Governmental agencies

Facilitating implementation/Information provision

Transport service providers

Facilitating implementation

Transport infrastructure providers

Facilitating implementation

Banks and other financiers

Facilitating implementation

Transport users

Interest groups, a. by mode Motorists; public transport users; cyclists; pedestrians.

Reacting to the system; Influencing opinion

b. By strategic interest

Business; the environment; employment.

Reacting to the system; Influencing opinion

Experts Information provision/Influencing opinion

The public Reacting to the system The media Information

provision/Reacting to the system/Influencing opinion

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2.6 Decision-making structures

In this area, which relates to the structure of decision-making organisations, we identify three sub-dimensions3: • responsibility and level of autonomy; • influences from geographically neighbouring and other levels of government; and • participation by and influence of interest groups. Decision making contexts may have substantial differences depending on the policy area in question and the administrative structure adopted. Decisions affecting different policy areas are made at different levels of authority; we distinguish between four levels: the EU; national; regional (including both county and larger sub-national regions); and local level (including municipality or city and metropolitan area). Administrative structures may vary from country to country and even from city to city (Le Gales, 1998; Page, 2000). Some cities, for example, are fairly autonomous municipalities whilst other cities are composed of several separate municipalities with autonomous and joint decision making organisations. In addition, the national and regional administration may have an influence in the process; especially the commuting municipalities. An important first question is the extent to which authorities have autonomy in their decision-making, or are subject to external verification. Table 3 shows the results of the PROSPECTS city survey regarding areas of policy responsibility. It can be seen that: • in all the survey cities there is some division of responsibility across the different policy

areas; • there is much diversity in the precise mix of responsibilities amongst cities, making it

difficult to identify any particular patterns; • across the whole range of cities, only 35% of cities manage their various responsibilities

together.

Table 3: Responsibilities in PROSPECTS survey cities (number of cities)

Policy area Your Responsibility

Joint Responsibility

Other’s Responsibility

Land-use 36 17 1 Road building 9 37 8 Public transport infrastructure 14 32 8 Traffic management 27 23 4 Bus and rail operation 6 22 26 Information provision 13 29 12 Pricing * 11 22 18 * three cities did not respond

Source: PROSPECTS (2001) 3 Much of our thinking in this area draws heavily on work undertaken for PROSPECTS, in particular a survey of European cities regarding their decision-making processes. PROSPECTS focused on decision-making in cities. In the absence of similar research relating to regional, national and international decision-making, we hypothesise that the general findings apply across these different contexts.

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Hence, decisions are often strongly influenced by neighbouring authorities and by other levels of government. Table 4 shows the results of the PROSPECTS survey regarding the level of influence on cities’ decisions from other levels of government. It emphasises the role of neighbouring authorities, whilst the EU currently has only limited impact.

Table 4: Authorities and their influence in PROSPECTS survey cities (number of cities).

Influence Very much Quite a lot A little Not at all Not stated Adjacent authorities 19 10 22 3 Regional authorities 13 21 16 2 2 National government 14 19 18 3 The EU 0 4 27 20 3

Source: PROSPECTS (2001) A further influence on decision-making comes from participation of interest groups, be it via formal or informal processes. Participation is an area in which practices differ greatly between countries. In some cases authorities are required to consult with the public and business interests; some do so informally; few do so intensively (Flyvbjerg, 1998). Consultation can also take several forms, from comprehensive participation in decision-making to public inquiries into specific proposals. While there is a widely held view that the former is preferable, the latter is the norm in many places. Table 5 presents the assessments of the PROSPECTS survey cities on the level of participation and degree of influence of five different interest groups. Three quarters of those responding involve business interest groups formally in decision-making; 60% do so for environmental and transport user groups and the general public. A substantial majority consider that business interests and the general public have a strong influence on decisions, but only a third think that transport users have much influence.

Table 5: Participation and influence of interest groups in survey cities (number of cities)

Interest group Participation Influence No answer

Formal Informal NS Strong Weak NS Business Interest Groups

29 12 10 31 11 9 3

Environmental Pressure Groups

23 16 13 21 20 11 2

Transport User Pressure Groups

22 15 14 14 27 10 3

General Public 25 14 12 31 9 11 3 Media 13 21 17 21 22 8 3 Source: PROSPECTS, 2001

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It becomes clear that some organisations categorised in section 2.5 above may fit into more than one group. For example it was highlighted in Deliverable One that individuals may belong to more than one organisation; on the other hand, some persons alone may even be considered as a relevant actor or organisation. An important element of a realistic picture of the politician's decision-making situation is the relationship between the different actors involved and affected. A crucial element of this analysis must be to model how politicians and the public (the voters) interact. How does the public perceive the actions of the politicians? What is the role of the media in this process? Is the reaction of the population to a certain policy measure foreseeable? Will the politician include this foreseeable reaction in his/her decision to propose a certain policy measure? Similar sets of questions can be posed on relations within the government and between government and transport service (and infrastructure) producers. It is difficult to categorise these decision-making structures clearly. However, we have identified a number of elements in such a categorisation, including degree of responsibility for individual policy decisions; ability to coordinate decisions across related policy areas; extent of centralisation or decentralisation; resulting degree of control; and extent of participation, consultation and influence. In all probability, the surveys in WP3 and the case studies in WPs 4-6 will identify others, and we propose to return to the specification of these structures in WP7. This in turn will be an important step in developing our recommendations for change in such institutional structures.

2.7 Decision-making and implementation processes

Decision-making and implementation processes reflect the approach to governance within a given institutional structure. As in other sectors of public administration, in transport they are complex and dynamic, involve several actors (see section 2.5) and are subject to revision and reversion at any time. While there is an extensive literature on the subject area within the field of public administration, there is relatively little which is specific to transport. Much of that literature is of a more normative nature, seeking to characterise and describe the stages through which decision-makers should pass in order to arrive at an optimal decision (see PROSPECTS, 2002; and Steer Davies Gleave, 2003). Emphasis in the literature is given to comprehensiveness – the intent to identify all possible choices – and rationality – the intent to follow a logical and reasoned series of steps. A typical set of steps in the process is as follows:

• Identification of problems to be addressed; • Identification of prioritised objectives or targets for the solution of the identified

problems; • Identification of the range of possible instruments for achieving the identified

objectives, and the consequences of choosing between different means; • Evaluation of each of the identified means against the identified objectives; and • Selection of the most appropriate means in light of the evaluation.

Such a characterisation of the decision-making and implementation process has been criticised on the grounds that it does not account for the limits on decision-makers’ capacity to deal with complex choices, the non-linear nature of the planning process in practice, policy-makers changing their priorities and values part way through the process as new information emerges and the role of external events. Nevertheless, models based on this kind

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of characterisation continue to form the basis of guidance to decision-makers and benchmarks against which to analyse decision-making and implementation processes. An extension of the characterisation set out above has recently been put forward, whereby decision styles are said to be either ‘vigilant’ or ‘non-vigilant’ (Steer Davies Gleave, 2003). Vigilant decision-making involves decision-makers striving towards the ideals of comprehensiveness and rationality, whilst scaling down the demands on organisational and human capacities, with the aim of ‘systematically excluding avoidable biases’. Ten procedural criteria are associated with vigilant decision-making, as follows:

• Carefully collect information before making a decision, rather than afterwards • Carefully establish the existence of a problem and the need to solve it • Carefully consider the full range of criteria or issues any solution must address • Carefully consider more than one policy or possible line of action • Carefully consider the costs and benefits of each alternative policy • Strive for a comprehensive, coherent and detailed analysis of the elements of the

problem, and of any systematic relationships between the elements • Intensively search for new information, and process that information in an open-

minded way • Carefully re-examine the consequences of each policy before making a final choice • Make some explicit attempt to work out how best to trade-off costs against benefits • Carefully consider how the chosen policy is to be put into practice, paying special

attention to the contingency planning required to take account of known uncertainties and risks.

Vigilant decision-making purports to provide a model of what a complete decision-making process would look like, though without the implication that this is how things should or could be; in this sense it is neither entirely normative nor positive in its approach. The model formed the basis of a recent review of decision-making processes in the UK (Steer Davies Gleave, 2003) and we believe it to be a useful categorisation for use within the TIPP case studies. This initial review again helps point towards a set of elements to be considered under this heading, including problem identification; objective setting; selection of policy instruments; appraisal of alternatives; information handling; risk assessment; implementation; and monitoring. Once again it can be expected that the surveys in WP3 and the case studies in WPs 4-6 will highlight other attributes which could be considered. We will finalise our categorisation in WP7, and use it as a basis for our recommendations on changes in governance.

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3. APPROACHES TO INSTITUTIONAL ISSUES

3.1 Introduction

There is no single commonly accepted and widely used theoretical basis or model for analysing institutional aspects and issues. Indeed, there has been relatively little theoretical work on institutional analysis, particularly in relation to transport. The transport literature that does exist on institutions uses concepts from institutional economics (e.g., see Rietveld and Stough, 2003; Rietveld, 2002; Nijkamp, van der Burch and Vindigni, 2002; and Stough and Rietveld, 1997) and, to a lesser extent, from public choice (see Pemberton, 2000). Addressing this lack of previous theoretical work on the topic is one of the key innovative aspects of TIPP. A review of the different possible alternative theoretical approaches (De Palma and Lindsey, 2003) found that the leading candidates are: • game theory; • institutional economics; • the normative and positive theories of regulation; • the theory of public choice; • psychological viewpoints; and • sociological viewpoints. The first four of these approaches were reviewed in Task 2.2 and are briefly summarised here, with their major strengths and weaknesses identified. The fifth approach was presented in Task 2.3, along with a re-examination of regulatory theories; these are summarised in the following section. At the same time we gave briefer consideration to the sixth approach, which is also outlined in Section 4. Within this section, game theory receives the most attention as it is viewed as the core approach to the analysis of institutional relationships. There are several reasons for this emphasis. First, strategic interactions are endemic to relationships within and between institutions, and game theory is arguably the only coherent way to analyse strategic behaviour. Second, game theory has a number of strengths; in particular, it highlights the importance of the timing of decisions and the importance of credibility and commitment. Third, game theory provides foundations for the other approaches. It underpins the principal-agent framework of regulation theories, and it underlies public choice theory and the branch of institutional economics known as Comparative Institution Analysis. Finally, the other methodologies serve in part as complements to game theory inasmuch as they help to identify the “rules of the game”, and to compensate for weaknesses of game theory such as the assumption of fully rational players embodied in many of the solution concepts of game theory. However, like the other theories, game theory has its weaknesses, and cannot therefore offer the sole theoretical foundation to our work. Whilst the focus is on a positive rather than a normative analysis, one of the motives underlying TIPP is to help identify and design efficient and equitable institutions for the transportation sector. Therefore, normative aspects do receive some attention; in particular in coverage of the normative theory of regulation.

3.2 Game theory

Game theory was developed as a tool for studying strategic interactions between small numbers of participants or players whose actions affect each other’s welfare. It has been

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applied to oligopolistic markets, bargaining, regulation, and relations between governments of neighbouring regions or governments at different levels in the same country. In the context of analysing institutions, those who design institutions, those who administer them, and those who are constrained or moulded by institutions, can be regarded as playing a game. The theory distinguishes between different types of game. In a cooperative game, the players can make binding agreements that are mutually beneficial, whereas in a non-cooperative game, such agreements are ruled out. Games can also be categorised into static games in which actions are taken simultaneously at a point in time, and dynamic games in which play is extended over a span of time and later actions can be conditioned on earlier actions. Our review is limited to non-cooperative game theory which is the more widely used branch of the subject, and focuses on dynamic games as these allow for players responding to each other’s actions, in keeping with the reality of most institutional interactions, e.g. between competing firms or different levels of government. Dynamic games have been applied with some success to empirical studies in industrial organisation and other fields. Two types of dynamic games can be identified: repeated games and sequential games. In repeated games the same static game is played twice or more in succession. The strategies chosen by the players in a given period, t, may depend on choices made in earlier periods, but the payoffs in period t depend only on choices made in period t. Sequential games differ from repeated games in that the payoffs have a structural time dependence; i.e. payoffs in period t can depend not only on choices made in period t, but also in period t-1 and possibly earlier (Friedman, 1986:19). In a finitely repeated game a one-shot game is played over a finite number of times. Given the repetition it is possible for players to use history-dependent strategies; i.e. to condition their choice in one period on what happened in earlier periods of the game. This might suggest that the outcome of the game can be more than a mere repetition each period of the equilibrium to the one-shot game. But such is not the case if the game is finitely repeated. In the last period, T, cooperation is impossible. Hence there is no benefit to cooperating in Period T-1. With no chance of cooperation in period T-1, there is no reason to cooperate in period T-2, etc. The possibility of cooperation “unravels” as long as the game has a last period where the unravelling can begin. The conclusion that cooperation cannot emerge in the PD game regardless of how many (finite) times it is played may seem counterintuitive; in fact it is not robust to some variations on the basic assumptions. An infinitely repeated game features an endless repetition of a one-shot game. Since there is no last period the unravelling argument described above for the finite game is not applicable. The scope for players to use history-dependent strategies enlarges the set of possible outcomes (including cooperative play) beyond equilibria of the one-shot game without the need to assume any degree or probability of “irrational” behaviour. That cooperation is possible in the infinitely repeated game is striking given that (a) cooperation is not possible (under the standard assumptions) in the finite game; and (b) cooperation is supported in a non-cooperative setting without binding resolution or even

overt communication by the players. It is important to note that, even if cooperation is an equilibrium to an infinitely repeated game, it is also an equilibrium for the players to select the non-cooperative equilibrium of the one-shot game in every period. Many other equilibria may also exist, including equilibria that

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involve alternating play between cooperation and defection, and equilibria in which ex ante identical players receive unequal present-value payoffs (Kreps, 1990:99). Historical and/or institutional factors may determine which of the various outcomes prevails. In a sequential game payoffs have a structural time dependence. In a market where entry is possible, the payoffs are intertemporally dependent because the decision by a new firm to enter has implications for its own profits as well as the future profits of incumbent firms. Game theory has a number of strengths as a tool for analysing situations that involve conflict and/or potential cooperation. First, it is an appealing way to predict how rational agents will behave conditional on what they know. Second, the results are often intuitive, though game theory can yield quantitative indications as to when a particular outcome is feasible that could not be derived from intuition alone. Thirdly, game theory highlights the importance of credibility and commitment (e.g. in the entry game), and suggests ways in which promises and threats can be made credible (Kreps 1990:65-77). He also remarks (Kreps, 1990:87) that "… [game-theoretic] modelling techniques have focused attention on issues of dynamics and proprietary information, framing the issues so that the ‘mechanics’ of the interaction — who does what when with what information — come to the fore. If one believes that the mechanics of institutional forms of interaction matter … then simply focusing attention and framing debate in this way is a notable success." Game theory also has limitations. Of overriding importance is that game-theoretic techniques require clear “rules of the game” (Kreps, 1990:94). It is necessary to know the identities, objectives and capabilities of all the players, as well as the timing of their moves, what exactly they observe, and so on. As Bagwell and Wolinsky (2000, Section 7) remark, "These features are normally not known to observers and natural intuition suggests that they should not be too relevant. However, they have to be specified and even worse they often matter a great deal for the analysis …. since the models are often viewed as a rather rough sketch of what goes on, the sensitivity of predicted outcomes to modelling details is bothersome.” A few comments on particular aspects of games are worth noting. • there is the possibility that there will be no identifiable equilibrium or that multiple

equilibria will exist simultaneously; • to keep the description of games (let alone the analysis) manageable, agents with a

potentially important influence on the outcome may have to be left out. • the timing of players’ moves can be crucial but is not always known; • it is not always obvious what actions players are capable of taking. On balance, the strengths of game theory as an approach for TIPP appear to outweigh the weaknesses. It does not aspire to solve all problems. Rather, the theory is designed to examine the effect of particular rules or assumptions on outcomes, not to determine what the rules are (Kreps, 1990). It should therefore clearly be included as a relevant, but not necessarily all-embracing theory for subsequent use in the project.

3.3 Institutional economics

Williamson (1985) argued that transactions are the basic unit of institutional analysis. Institutions succeed if they reduce the costs of acquiring and processing information or other costs of transactions. As the need for cooperative adaptation grows, the advantage shifts from markets to hierarchies (Williamson, 1998). While the celebrated Coase theorem argues that

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governments or formal institutions are not required to resolve differences or conflicts, transactions costs and the potential for misrepresentation of preferences militate against bargaining by individuals, and in favour of institutions due to the economies of scale and specialisation they enjoy. With appropriate institutions in place, fresh rounds of bargaining are not required to deal with each new externality or conflict. Institutional economics is an approach to the study of institutions. Until recently the “old school” of institutional economics dominated. It offers itself as an alternative to the neoclassical economics conception of the economy. In place of markets it asserts the primacy of organisation and control of the economic system; i.e. the power structure. Indeed, institutional economics argues that the market itself is an institution, and that the economy is more than a market mechanism. Several themes are prominent in institutional economics (Samuels, 1987): • Institutions are endogenous. Institutional economics regards institutions “not as

something to be taken as given but man-made and changeable, both deliberatively and nondeliberatively” (Samuels, 1987:865).

• Institutional content and values are important. This contrasts sharply with neoclassical economics, which relies on models that focus nearly exclusively on equilibrium and optimality while largely ignoring institutional considerations and disregarding value judgments even though they are often implicit in the analysis.

• Whereas neoclassical economics focuses on the mechanics of choice for given opportunity sets, institutional economics emphasises that opportunity sets are endogenous. It also attempts to understand how human values change. In this respect, institutional economics is suited to the analysis of regulatory reform, and the removal of barriers to the implementation of efficiency-enhancing transport policies.

The New Institutional Economics may have started with Coase’s 1937 article “The nature of the firm” (Coase, 1937). The term “New Institutional Economics” was coined by Williamson to distinguish it from the old institutional economics, which was anti-theoretical and not susceptible to analytical methods or amenable to conceptual generalisations. However, the New Institutional Economics continues in the tradition of the old school in its treatment of opportunity sets and constraints as endogenous, and in its focus on change. This is in contrast to game theory where the protocols or rules of a game are usually taken as given. Institutional economics therefore can aid game theory by helping to determine the identities of the players, what they can do, and the timing of their moves. A careful inspection of institutional considerations can also aid in narrowing down the set of plausible outcomes of a game. Institutional economics is therefore a useful, if not essential, supplement for game theory as a tool for studying institutional issues in transportation and other fields. The relationship goes in the other direction too. Indeed, game theory is one of the foundations of the recent sub-field of the New Institutional Economics known as Historical and Comparative Institution Analysis (HCIA). But HCIA takes a nuanced approach to game theory in two senses. It does not assume that standard solution concepts are appropriate. And it does not assume that institutions with the best attributes will necessarily be the ones that arise. As Greif (1998:82) puts it: "…recognizing that historical actors have a limited rationality implies that studying institutional change and innovations requires going beyond the conceptual confines of game

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theory. HCIA postulates that institutional dynamics might not be an optimal response to the changing environment...” He further writes (p.81): "The empirical methodology employed in this line of analysis reflects its concentration on the identification of relevant organizations and beliefs on and off the path of play and its attempt to evaluate, rather than assume, the relevance of game theory.” In summary, institutional economics (or at least the New Institutional Economics) can be viewed as a complement to game theory in analysing institutional issues in transport policy implementation. Game theory provides institutional economics with a framework for building rigorous arguments about institutional issues, and institutional economics helps to fill in the “holes” of the game-theoretic framework with empirical detail. Naturally, the detail will be specific to the setting under study. The specificity of the setting may also suggest fairly precisely what the players of the game can reasonably be assumed to know, what their objectives are, and to what degree they can (or have chosen to) optimise these objectives. Institutional economics has a number of strengths: • it recognises that institutions and opportunity sets are not exogenous and fixed, but

endogenous and evolving. • it attempts to understand how human values change. • value judgments are made explicitly rather than being hidden or ignored. • unlike with standard game theory models, agents are not assumed to be perfectly

informed or to have unlimited cognitive powers. Nor is it assumed that the best institutional forms will always emerge.

These features of institutional economics suit it for analysis of how institutions can be improved, and how acceptability and other barriers to the implementation of progressive transport policies can be overcome. But perhaps the most important role of institutional economics is to help specify the rules of the game: i.e. the identities of the players, their objectives, their capabilities, and the timing of their moves. Institutional economics can also aid in identifying the most likely candidates amongst alternative equilibria to a game. A serious weakness of the “old school” of institutional economics is that it emphasised description rather than analysis, and was not amenable to conceptual generalisations. But this is not a disadvantage of the New Institutional Economics. The field of Historical and Comparative Institution Analysis, which makes selective use of game theory, provides a powerful combination of historical and analytical tools to study transport institutions.

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3.4 Regulatory theory

According to Noll (1989) the market failure rationale for regulation4 can be thought of as having three components or steps: 1. A positive theory of conditions when market failure occurs. 2. A normative theory that government should take corrective regulatory actions. 3. A positive theory that government will in fact undertake such actions. The normative theory examines whether regulation is the best response to market failure, or whether alternatives such as fiscal or competition-based measures are superior and — if regulation is deemed best — how it should be designed. At step 1, the positive theory assesses whether significant market failure(s) are likely to occur. And at step 3, the positive theory addresses whether governments adhere to the prescriptions provided by the normative theory in actual practice, and if they do not do so how they do behave. Ideally, a complete theory of regulation should explain: (a) what gets regulated, (b) the methods chosen for regulation, and (c) the likely winners and losers from regulation (Hahn, 1990). Normative theory is focused on question (b), although it addresses (a) in examining whether regulation is the best policy, and also (c) directly or indirectly through the calculus of welfare economic analysis. Positive theory has something to say on all three questions too, but its main strength lies in analysing the interplay between questions (a) and (c). That is, positive theory studies how potential winners from a particular regulation lobby for it, how potential losers lobby against it, and how the political system determines the outcome of the opposing forces. The normative theory of regulation assumes that politicians act out of benevolent regard for their constituents, and that no group of voters has disproportionate influence. This ignores the human nature of politicians, civil servants and officials in regulatory agencies. The fundamental insight of Stigler (1971) and other contributors to the positive theory is that, like individuals and firms, these agents are driven by self-interest, and are susceptible to opportunistic behaviour. In regulatory environments the principal outlet for opportunism is that, given a lack of constitutionally entrenched property rights, agreements and contracts can be abrogated. It is difficult to anticipate all the ways that government can infringe on franchise value; e.g. via changes in transportation, environmental, occupational health and safety regulations, or through regional development policies. Political demands for fair access may effectively impose limits on what prices firms can charge. And it may be difficult to distinguish legitimate actions from attempts to debase value — possibly for the nefarious purpose of buying out private interests cheaply (Daniels and Trebilcock, 1996).

4 In addition to market failure, a case for regulation is sometimes made on distributional or equity grounds. The core of normative theory is based on the assumption that regulatory policy should be designed on efficiency criteria alone without consideration of distribution. This overlooks the fact that government may lack policy instruments to address the two separately (it cannot impose individual-specific lump-sum taxes freely), and therefore may have to make tradeoffs

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A further consideration in the positive theories is that interest groups can influence regulatory and other political decisions by bending the ear of politicians or drowning out the voices of other constituents. Politicians and regulators can be captured by these interests. Because the preferences of interest groups generally do not coincide with the public interest (however this interest is defined) the normative theory may make poor predictions about what happens. Positive theories concern how regulation works in practice. Besides describing the outcome of political struggles, they can shed light on how institutions can be reformed to constrain opportunistic or rent-seeking behaviour. Restraints may be required in two directions: first to restrain the discretion of agencies, and second to prevent government from changing the regulatory framework. Amongst the strengths of the normative theory are: a) Its rigorous microeconomic and game-theoretic foundations, b) Recognition embodied in the principal-agent framework that actors do not have perfect

information and that they differ with respect to what they know, c) A clear understanding of the trade-off between efficiency and the size of the rent

transfer to the utility/agent, d) Clear insights into the relative merits of different forms of regulation such as rate-of-

return regulation and price regulation. The limitations of the normative theory include: a) The assumption of a benevolent/welfare-maximising regulator, b) The assumption that politicians will favour simple and open decision processes, c) Disregard of institutional considerations, d) Use of equilibrium analysis, e) Doubt that normative policy prescriptions can be fine-tuned to small differences in

probability density functions as called for by the models. The strengths of the positive theory are: • Recognition that regulators behave in self-interested way. • Insights into how institutions can be reformed to constrain opportunistic or rent-seeking

behaviour. • Insights into how requirements for efficient market operation depend on such conditions

as degree of capital mobility, scope for opportunistic behaviour, and ability to contract on future contingencies.

The positive theory shares limitations d), e) and to some extent c) as identified for the normative theory.

3.5 Public choice theory

The theory of public choice concerns itself with the behaviour of politicians, voters and other parties involved with decision-making in the public and political domains. Public choice theory uses the methodology of economics and the institutions of political science. As Tullock (1987:1041) observes: "… by using a model in which voters, politicians and bureaucrats are assumed to be mainly self-interested, it became possible to employ tools of analysis that are derived from economic methodology."

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Public choice theory is both positive and normative, and its development parallels that of the positive and normative theories of regulation although it is broader in scope. Three aspects of public choice theory were reviewed in Task 2.2: • social choice and voting; • models of the manipulation of the political process – logrolling, the role of the bureaucrat

and interest groups; • fiscal Federalism - Government centralisation versus decentralisation, horizontal

competition between jurisdictions at the same level, Vertical tax competition and Inter-governmental transfers.

Public choice theory has two crowning achievements. One is Arrow’s impossibility theorem that no “ideal” social choice rule exists. The other is the recognition that government does not operate as a benevolent and omniscient entity, but rather is run by politicians and bureaucrats with their own agendas, and with cognitive limitations. The upshot of these two insights is that the public sector operates in a world of second best, that perfect outcomes cannot be expected, and that tradeoffs (e.g. between efficiency and equity, or between the well-being of opposing groups) are inevitable. A vast literature on public choice theory has accumulated since the work of Buchanan and Tullock (1962). Some of its predictions are sensitive to assumptions; for example, whether the prospects of reform are enhanced if the benefits or the costs are highly concentrated turns on what information is disclosed, and whether individuals in particular groups decide to vote and/or exercise their voice. This ambiguity could be seen either as a drawback, or as a valuable insight that could well be descriptive of reality. One limitation of the literature on fiscal federalism is the working assumption that there are only two levels of government, central and local. In many circumstances, however, intermediate-level governments (e.g. states or provinces) are also relevant. These governments have more room to manoeuvre than do local governments, although they are more constrained by mobility than are central governments. More importantly for analysis, intermediate-level governments interact with levels both above and below them. Simple median-voter models that work for local government may be inadequate to describe these circumstances (Ladd, 1994). Alternative models need to be developed to address such questions as whether aid to local governments should come from the intermediate or central government level. Like game theory and theories of regulation, public choice theory needs to be informed by good institutional knowledge. As Oates (1994:150) remarks “Although economic analysis has much to contribute to our understanding of intergovernmental fiscal relations… the ‘solutions’ to federal fiscal problems must depend in important ways on the historical and constitutional character of individual countries."

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4. PERCEIVED LEGITIMACY OF INSTITUTIONS AND POLICIES

4.1 Introduction

Task 2.3 aimed to lay the theoretical foundation for a model of political acceptability of transport policies and institutions from a viewpoint that combines psychology and elements from the positive theory of regulation (a model to be further developed in Task 4.1). Therefore, theories relevant to understanding the interplay between economic forces, social factors and the incentives of policy makers have been reviewed. In political science the importance of acceptability for the legitimacy of institutions has already been acknowledged (Lucke, 1995). Acceptability as a source of legitimacy gains particular relevance in situations where: a) new and innovative policies are implemented, b) the success of the implementation relies on public support and c) if within the rationale of the policies there are no sources of legitimacy itself. Hence, the transport sector seems to be especially affected by the influence of public acceptability; road pricing and rail fares being two cases in point. The focus is placed on the theory of regulation, on the premise that transport policy can largely be viewed as consisting of a set of market interventions analogous to regulation, but it is contended that current theoretical models are too simple to explain transport policy-making. In particular, they omit the psychological processes of the voting population and the role of the media. It is argued that the way the voting population perceives policies is important because politicians are constrained in the benefits that they can confer on their favoured interest groups by the need to gain public acceptability for their policies. Also some policy areas attract much more attention in the public than one might expect given the number of people directly affected by them, e.g. rail versus other modes in Germany. So it is argued that models of the positive theory of regulation must be amended by approaches from psychology and media research to enable us to understand institutions and policies and why certain policy proposals have been successful and others have not. In order to analyse the political decision-making process in the transport sector, we developed a simplified framework, based on Laffont’s (2000) two level distinction of policy making as shown in Figure 2.

Voting Population

Politician/Legislator/Regulator

Transport Sector(Markets, Companies)

PrincipalPrincipal-Agent--Agent-RelationshipRelationship 1 1

PrincipalPrincipal-Agent--Agent-RelationshipRelationship 2 2

Media

Figure 2: Framework of political acceptability

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The first level, shown in the lower part of the figure, refers to the interaction between politicians/regulators and the firms operating in the transport sector; the principal-agent relationship between regulators and regulated firms. The second – higher - level refers to the interaction between voters and politicians/regulators; the “constitutional level” (Laffont, 2000). It is implied that this is where the basic rules for the principal-agent relationship are laid. This idea is not new. It is found in writers from Montesquieu (1748) in the 18th century up to Buchanan (1975) in the present day. In addition, we include the media which acts as an intermediary between the transport sector and the public and between the politicians and the public. Whilst the model includes several bi-directional relationships and feedback loops to show the complete and somewhat complex picture, we focus here on those actors and relationships which we view as novel and so far neglected in the attempt to understand the political decision-making process in the transport sector. In practice they include virtually all of the types of actor identified in Section 2.5. The rest of this chapter first gives a critique of the economic perspective of the functioning of institutions and policies, in particular focusing on various prototypes of the positive theory of regulation, and their lack of institutional and in particular psychological considerations. Secondly, it summarises, from a psychological point of view, theoretical approaches and empirical evidence relating to public reactions towards transport pricing policies. Thirdly it considers the factors influencing the political decision. The final section moves forward towards a ‘psycho-economical model’ of political acceptability using the framework outlined above.

4.2 Critique of prototypes of the positive theory of regulation

Interest group theories are one group of prototypes of the positive theory of regulation. Following the Stigler/Peltzman model and the Becker (1983, 1985) model, a huge literature on interest groups has developed which has seen contributions by economists, political scientists and other social scientists . Noll (1989) argues that forming interest groups helps citizens to solve two problems:

(a) the problem of powerlessness - interest groups enable citizens to express the intensity of their preferences far more clearly than through the voting process; and

(b) the problem of monitoring politicians - monitoring performance may be far too costly for any individual voter, but a special interest group can distribute these costs over the number of its members.

The most important activities of interest groups are: • to gain access to policy-makers - politicians’ time to listen to interest groups is usually

very limited so one of their key functions is to obtain access to policy makers, and campaign contributions can be seen as a kind of “access charge” through which interest groups buy a share of the policy maker’s time; and

• to supply policy makers with information - frequently argued as being the most important function, though it is clear that they may do so in a biased manner.

Campaign contributions are designed to influence policy-makers to implement a certain type of policy, so models that centre around the question of how campaign contributions “buy” certain policies are therefore of high relevance for an institutional analysis of transport policy-making. Following van Winden (1999) we classify models according to the way in

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which campaign contributions influence policy makers. This influence can be modelled in three ways:

- by using a voting function - by using an influence function - by using a composite utility function.

The proposition that the main aim of a politician/regulator is to stay in office, and to this end he or she tries to maximise net votes, forms the standard explanation of the process of regulatory capture – whereby the regulatory body begins to serve the interests of the industry rather than the interests of the consumers. The process is modelled by assuming a voting function, whereby votes for the regulator are related to prices set by the regulator and to profits earned by the industry. The lower the price the more votes are awarded by consumers, whilst the higher are industry profits the more votes are awarded by industry; but the lower the price the lower are industry profits. The regulator’s aim is to find the price that maximizes political support and the outcome is dependent on the relative political influence of consumers versus producers. Within the category of voting function models we may distinguish further between exchange models and support models. In exchange models the contribution of a pressure group influences the political platforms of a candidate and it is assumed that after being elected the candidate will indeed implement the platform as announced before the election (a strong assumption). In support models campaign contributions are given to increase the election chances of a candidate (like in the Stigler/Peltzman model above). Several weaknesses of this type of model are identified, including: • their failure to reflect the range of different actors and interest groups, and in particular

their differing motivations, typically involved in real-world situations; • their failure to incorporate the views of the wider population (those not directly affected

by the policy in question) and the role of fairness and legitimacy; • their failure to reflect the role of the media in communicating policy to the wider

population; • their inability to explain why regulation or deregulation of industries seem to occur in

waves; • their implicit assumption that there is a demand on the part of industry to be regulated, in

contradiction to industrial history which shows that industry was often quite reluctant to let itself be regulated (Peltzman 1993); and

• the existence of a long list of regulations that were not supported by the industry and have resulted in lower profits.

We conclude therefore that voting function models leave key questions unanswered. We believe that models of this type have to be amended by psychological hypotheses, for instance about fairness and legitimacy but also about the question which policy problems are likely to obtain the public’s attention and which do not. Finally we believe that the image of politicians and regulators in these models is unrealistic. Regulators do not only care for being re-elected or for monetary gains. They care for other things as well. In particular, a politician, like everybody else, looks for appropriate rewards in his social environment. As far as the political parties decide about whom to put on their list for re-election this seems to be at least as important as caring only for direct votes. Moreover, it coincides with the general human motivation to look for a rewarding environment and to conform with social norms relevant there.

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Influence function models follow an approach developed by Gary Becker (1983, 1985) which is based on individuals belonging to particular pressure groups, defined for example by occupation, industry, geography etc, and these groups using their political influence to enhance the welfare of their members; welfare may be improved by lowering the amount of taxes paid and or increasing the subsidies received from the government. Politicians, political parties and voters are assumed to simply be transmitters of political pressure of the active groups in the society. The outcome of groups’ lobbying activities is described by means of an “influence function”, that relates the political influence of each pressure group - expressed by the subsidies the members of a group receive and/ or the taxes the group members have to pay - to the pressure exerted by the given group and to the countervailing political pressure exerted by all the other social groups. Again, a number of important problems with the approach are identified including: • people can be subject to fiscal illusions or rational ignorance so the costs of different

tax/subsidy policies could be substantial without being detected; • its failure to incorporate the role of the media; • its failure to describe how the political process works - the political influence function is

assumed rather than explained which weakens the explanatory power of the results. Again therefore cognitive processes and the media seem to be important here and neglecting them an important shortcoming of this type of model. In special interest group models that centre around composite utility functions, politicians (or regulators) look for policies that maximise a weighted representation of the utilities of different social interest groups. Such models were pioneered by Keeler (1984) by changing the political voting function in the Stigler/Peltzman model to a particular type of social-welfare function, which includes normative value judgements of the voting population. So whilst the political voting function of the Stigler/Peltzman model incorporates only the producers and consumers of a certain product or service and ignores all other groups, the Keeler model takes the value judgements of all groups in society into account. In this way, composite utility function models bring notions of fairness and legitimacy into play. Lobbying via the provision of information to political decision-makers is extremely important. Politicians have incentives to listen to interest groups because in principle the quality of their decision making will improve when they take additional information into account, because they generally lack resources to collect information. Interest groups have access to cheap information in the form of the highly specialised knowledge of their members. However, political decision makers with limited time will not listen to each and every interest group. Rather, they will use “screening devices” (e.g. campaign contributions) to separate “important” from “less important” groups and “valuable” from “less valuable” information. Even once an interest group has gained access to a certain policy maker, it faces two major problems: the political may have different policy aims than the interest group; and the politician has no way to directly verify the information supplied to him, so the interest group must convince him of its credibility. Various models of information provision have been developed (Grossman and Helpman, 2001). Such models can be categorized in the following way: • models where there are no (or only little) costs of lobbying (“cheap talk”);

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• models where lobbying costs are significant or can even be used by interests groups to “signal” the importance of a certain piece of information;

• models where there is only one interest group; and • models where several interest groups try to influence the policy maker. Lobbying may give rise to substantial costs and it is important to include these in any realistic model. Grossman and Helpman distinguish three types of lobbing costs: • costs that are independent of the content of the information that an interest group wants to

convey (exogenous lobbying costs); examples may be the costs of expert witnesses or lawyers; the salaries of such experts are the same no matter whether they argue for or against a certain policy;

• costs that vary with the emphasis that the information is to be given (endogenous lobbying costs); an example may be a costly advertising campaign;

• costs that the policy maker imposes as an “access fee” for listening to the Special Interest Groups (SIG); these access fees usually take the form of campaign contributions which the SIGs must deliver before politicians agree to meet them.

Once costs are included, an interest group’s willingness to incur lobbying costs may serve as a signal to the policy maker about the SIGs credibility. In certain cases it may even be worthwhile for a SIG to incur more costs than would be necessary to convey the relevant information. Likewise, access fees to the policy maker’s time may serve to screen SIGs with respect to the value of the information they are likely to provide or with respect to their possible political bias. Voters are also very prepared to pay attention to the information provided by interest groups because they are usually even more in deed of political information than policy makers. In most cases the cost of obtaining information for them is so high that they prefer to remain “rationally ignorant” The same credibility problem arises in relation to votes, however, as voters are not usually able to verify the truth of the interest group’s claims. Not surprisingly, the analysis of the influence of interest group information provision on public opinion is very similar to that relating to the influence of interest group information provision on political decision makers. In contrast to the case of policy makers, however, the timing of the informational campaigns is of key importance for the strategies of the interest groups. Models of information provision represent an important innovation in both economics and political science, their merit being in the precision with which they treat the problem of asymmetric information between interest groups and policy makers or the public at large. However, these models make strong rationality assumptions (van Winden, 1999) and, as already noted, we believe there are cognitive limitations in human behaviour which make strong assumptions questionable. Hence, we believe these models should be amended by taking cognitive limitations into account (though given the strong reliance of these models on game theory.) In particular, we believe that it is very difficult to understand the preoccupation with a railway policy that is observed at national and EU levels within the framework of a pure interest group model. Whilst the railway lobby is very strong and effective, there are other strong and effective interest groups. It seems implausible that information conveyed by the railway lobby has been so much more credible than information conveyed by competing interest groups. We venture the hypothesis that, in addition to interest groups the support of railway policy by the voting population has played a very important part here and that public

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opinion is influenced to a high degree by the media Hence, we again believe that factors like media coverage, notions of fairness and acceptability and cognitive processes must play an important role in models that try to explain transportation policies as we see them in reality. By way of validation, van Winden (1999) comes to the conclusion, in his extensive survey, that the state of the literature on interest group theory is unsatisfactory and that it could profit from incorporating theoretical elements of social psychology. Information asymmetrics are core to the very nature of the political process and their presence creates a typical principal-agent problem. Laffont and Tirole and notably Laffont (2000) have extended principal-agent modelling to cover the positive theory of regulation. The analysis is cast in the form of a three stage principal-agent model analogous to that set out in section 4.1 above. On the first level there is the regulated firm. On the second level are the regulators of the firm (or the politicians) which, in turn, are supervised by a third layer, “congress” or the public at large. The third layer’s task is to ensure that the two first layers to not strike mutually advantageous deals. Laffont and Tirole assume that the regulators obtain an “information signal” from the regulated industry (for instance about its true cost) and regulators have then to decide whether they report the true signal; with the regulated industry (and relevant interest groups) trying to influence the regulator’s reporting decision. Since congress is not able to judge whether the regulators tell the truth they set up a scheme of incentives that will induce the regulators to tell the truth on average. Laffont himself acknowledged a important inconsistency in this approach (Laffont, 2000). Congress is assumed to maximize social welfare – congress is assumed to comprise benevolent congressmen – which implies a more normative than positive analysis. We believe that this is a serious difficulty for the Laffont/Tirole approach. Furthermore, modelling the relationship between regulators and industry or between congress and regulators as a principal-agent problem means that we treat these relationships like the relationship between two persons. In reality we are dealing here with relationships between highly complex entities. It may well be that incentive schemes which are designed to optimise the behaviour of a certain firm may not achieve the desired goals when the internal structure of “an agent” is disregarded classical organisational psychology deals with the practical consequences of this fact. Also, we contend that the Laffont/Tirole model, and several similar incentive schemes (the Loeb/Magat proposal or the Finsinger/Vogelsang mechanism), were far too complex to gain any acceptance by politicians, firm managers and regulators. Again, we believe that there are cognitive factors that decide whether a certain scheme is acceptable and will be realised or not. A further criticism is that Laffont does not consider the role of the media in his work, despite the media’s significant role in provision of information and, hence, its relevance to the issue of information asysmmetry.

4.3 Psychological Aspects of Public Policy

Recent research investigating the acceptability of urban transport pricing policies has identified several issues which are crucial for public and political acceptability of transport pricing policies. The theoretical background was developed by Schlag and others (Schlag & Teubel, 1997; Schade & Schlag, 2000), consisting of a heuristic model of public acceptability. This model describes the essential issues determining acceptability: • problem perception; • knowledge about options;

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• important aims; • social norms and pressure; • perceived effectiveness of the proposed measure; • fairness; and • system characteristics such as method of charging and hypothecation. The model implies the structure of public acceptability as a process of issues building upon each other. First, the perception that traffic related problems are important and urgent issues is a prerequisite to discussion of solutions. People have to feel that something has to be done in order to improve the situation especially in urban areas. The results of various surveys show consistently that there is a considerable awareness of problems in the broad public (e.g. Schade & Schlag, 2000). This awareness concerns first immediate traffic problems such as congestion, but also environmental problems has a different impact on acceptability as compared with the perception of traffic problems (Harsman, Pädam, & Wijkmark, 2000). Thus, one main argument when selling pricing measures to the broad public should be that these will tackle not only congestion but related problems such as detrimental effects on the environment. Second, environmental awareness research pointed out that knowledge about possible options to solve the perceived problems is another precondition for a corresponding behavioural change (e.g. Schahn, 1993). Research investigating the factors influencing the acceptability of urban pricing measures confirmed the significance of information about policies and measures (e.g. Link, 2003 and Schade & Schlag, 2000) Third, proposed solutions are evaluated in relation to own attitudes and above all perceived social norms and expectations. These issues are particularly important if there is no personal experience with the options proposed. Furthermore, concerning pricing policies, the issues of the perceived effectiveness of pricing measures, personal aims, the individual cost benefit expectation and notions of fairness have all been identified as important assessment criteria of urban transport pricing policies.

4.4 Towards a psycho-economic model of political acceptability

There are three main actors in the framework presented in Task 2.3: the voting population, the politicians, which act as regulators, and the transport sector, that is, the various transport companies. We deal with every group successively, beginning with politicians. In order to explain the regulatory actions of the politician we have to develop some ideas about the motivations of politicians. From an economic point of view, we assume that the politician’s behaviour can be described by a voting function. The number of votes a politician gets depends on two factors: • The benefits he confers to the beneficiaries by introducing (or abolishing) a certain

regulation; the beneficiaries will give support to the politician in the form of monetary or non-monetary aid to his re-election campaign and therefore improve the politician’s changes of becoming re-elected; therefore the voting function increases in the benefits given to the favoured groups;

• The welfare losses he imposes on the population via this regulation (or its abolition);

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• Insofar as these welfare losses are really perceived and understood by the voting population, they will have a negative impact on the number of votes the politician gets; therefore the voting function decreases in the magnitude of the welfare loss that is generated by a certain regulation.

From a psychological point of view, there are least two important asymmetries that may modify the above assumptions. The first attempts to explain the behaviour of politicians. The second explains the behaviour of the public and interest groups. First, for political acceptability, a major disadvantage of pricing policies is said to be that their benefits are not directly attributed (in the eyes of voters) to the politicians’ actions (Frey, 2003). In contrast, the costs or disadvantages of pricing policies are attributed to the politicians’ actions. The explanation of this asymmetry, evidently, is that the costs and disadvantages of pricing measures directly hit the motorist, whereas most of the benefits to them and the society are gained only indirectly. Second, an extremely important factor contributing to the poor political (and public) acceptability of pricing policies appears to be the following fundamental asymmetry: the benefits of road pricing are widely distributed, including other sectors, and are relatively small per capita; the corresponding costs typically accrue to a few well identified groups and can be high per capita. Therefore, even though the net benefits in aggregate are positive, there may be strong political opposition due to active lobbying by those who would lose while those who would gain do not care or do not have any incentive or motivation to try to influence or support the decision. Thus, politicians are faced with a strong opposition from well identified groups on one side and a ‘silent majority’ on the other. This observation highlights the importance of distributional considerations – including potential redistribution and compensation schemes – for political acceptability. Thus, for a politician the rewards (say, positive voting) he will get for deciding in accordance with a perceived public opinion (or priorities) are not at all clear. He might resolve this uncertainty – and uncertainty means nothing else than cognitive risk – about the outcomes of his behaviour in two ways: by becoming a “populist” using the media for his purposes – but only a limited number of politicians might feel that they have the necessary skills to exploit the media this way; or by looking for appropriate rewards in his social environment. Given that the political parties decide whom to put on their list for re-election, this seems to be the much more promising way to proceed. And moreover, it coincides with the general human motivation to look for a rewarding environment and to confirm with social norms relevant there. The latter strategy is the one most politicians will adopt in the long run. This again creates mutual dependencies leading to a higher coherence in the in-group, their own political party. It follows that there is a tendency towards conformity: most of the people involved expect the best outcome when nothing changes (status quo bias). This again leads to delays before importance decisions are made. What gets higher importance when introducing innovative policies is something like the traditional two step flow of communication. First the opinion leaders have to be convinced and they again will look for majorities. Or a political newcomer might expect personal rewards and tries to build his political career on the new policy, thus showing dedication. In that case their commitment to the new ideas is strongest when they perceive first results and

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expect future developments supporting the policies and in political power in a direction advantageous to themselves. Rationality thus is not only directed towards the objective issue under discussion but above all towards their own state and own future development. But even this might be only half the truth. People’s (and also politicians’) decisions are heavily influenced by their emotions towards the objective under discussion, towards the others participating in decision making, and above all towards their now role in this process. It follows that when starting a process, at the end of which a critical decision has to be made, it is crucial first to create a climate of trust and positive regard. If this is lacking, people involved often do not look primarily for a good solution to problems but concentrate on possible mistakes of the others involved, on shortcomings of solutions proposed and so on And if the “wrong” person proposes the “right” solutions, reactance by those opposing might be the only result. It was mentioned above that the welfare losses must be perceived by the public in order to generate any reaction of the voting population. People may oppose policies even or maybe because they do not understand them. Even if most technological and political innovations might result on societal benefits, opinions and intentions of the people concerned are often not canvassed when new measures are being considered for implementation. This might lead to “irrational” resistance not only from the people concerned, and ultimately to the failure of the original useful innovation (Schade & Schlag, 2003). This is therefore the appropriate place to bring the media into play. Some of the welfare losses will easily be visible to the voting population, like inefficiencies in the rail sector in Germany or in the UK today. Other types of welfare losses, however, are not so easy to perceive. The inefficiencies that existed in the airline industry before deregulation, for instance, were not so easily visible. They became so only after carriers like Southwest Airlines who operated in unregulated (intrastate) markets showed that they existed. The media system plays an important role in making welfare reducing and welfare increasing policies known to the public. The media act as a kind of intermediary between the politician’s actions and the voting population. The media system observes aggregate welfare losses and decides, according to its entrepreneurial aims of making profit, to which extent it will report on these losses. We assume that the media interest of a certain economic regulation in a particular industry, can be measured by the inefficiencies that exist in this industry. As long as everything runs smoothly, interest is small. As soon as large inefficiencies become visible interest of the media and the public awakens. The railways in Europe are an example which also shows that the interest generated by inefficiencies is not necessarily restricted to the users of a certain industry (see also case studies). Because media enterprises choose issues according to their profit potential, the decision on which political issues will be covered in the press and accordingly get into the voting population’s consciousness is based on the same principle. From a psychologist’s point of view, however, it should be added that the media’s interest does not only relate to profit in a monetary sense. Media reports are written by individuals and journalists like politicians look for rewards in their social environment. But this is only one parameter influencing their behaviour.

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When there is full coverage of an issue in the media we are back in the world of theories of regulation where everybody is perfectly rational and fully informed. On the other hand, when the media do not set certain topics on the agenda and no media coverage exists, the politicians can maximize their individual goals without any risk of losing votes, because their activities are a “non-issue”. The profit maximization process described above, suggests that the media system reacts to certain policy issues in a predictable way. Some issues will be covered in great detail (perhaps even in a “sensational” way.) Others will not be covered at all or to a very small degree. This observation suggests that there exists a kind of “reaction function” of the media system to certain policy issues. It will be very difficult to describe this reaction function in detail. Still, some typical features of this function may be discovered, at least with respect to issues in transportation policy. It can be concluded that the reaction of the media will be more sensitive when certain policies infringe the fairness perceptions of the general public. It is a proven fact that media coverage is more comprehensive when an issue is linked with strong emotions. Professional editing of policy issues under the use of certain media instruments like personalization, or the concentration on individual cases supports the personal identification by the recipients and increases the perceptions of emotions. Actual and alleged fairness infringements are very emotional and therefore very attractive for journalists. Psychologists call this phenomenon “knee jerk reflex”. Memorable pictures are also a popular means of the media to present “emotional” news and often need little explanation. All these media tools have to be put in context with the already mentioned costs of complexity reduction and the profit function of the media system. Therefore, issues which offer the possibility to be presented in an emotional way or in memorable pictures in general have a greater possibility to be put on the media’s agenda. If we assume that a reaction function of the media system with such features really exists then it is quite likely that politicians do know about it (even if they are not conscious about it) and try to use it for their purpose. From a game-theoretic perspective they are then in a position to play on this reaction function. That is, in designing any policy they will anticipate the media systems reaction and therefore the effects on the voting population. In the language of game-theory; they play a so called Stackelberg game with the media system and the voting population. In psychological terms, politicians adjust their decisions towards the social norm. In that case this is firstly, the public opinion, mediated by the media, but also secondly, the reaction of the media as an independent factor described by the reaction function of the media system. Nevertheless, there are further questions concerning the media’s impact, such as how strong the influence of the media towards the voting population really is; what are the means employed by the media to reach their recipients? To give comprehensive answers to all these questions would exceed the framework of the TIPP project. Therefore, we refer the interested reader to extensive media impact research. Instead, we concentrate our work on criteria which are potentially helpful in analysing the case studies in WP4. In Task 4.1 of WP4 we take up the challenge and try to incorporate the arguments described above into a model of political acceptability. With the help of several case studies we hope to be able to illustrate the plausibility of such a model.

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4.5 Institutions in sociology

Existence of institutions has traditionally been a central topic in sociology – more so than in economics and in political science. Even though no particular school of “old institutionalism in sociology” exists, nearly all classical European sociologists – spearheaded by Émile Durkheim and Max Weber – have used and analysed the concept of institutions or similar phenomena. Talcott Parsons attempted to synthesise the arguments of Durkheim, Marx and Weber, and his notion of institution has been particularly influential in sociology. (Scott 1995, 8–12.) The point made by classical European sociologists and Parsons is that social contracts are not made in a vacuum but under the influence of institutions, norms, cultural rules or symbolic systems – the wording depending on the theorist. Durkheim used the notion of “social facts” which emphasises that the institutions are not ontologically reduced to individuals (Gronow 2003, 11–12). Sociologists like Charles Cooley, Everett Hughes and Peter L. Berger & Thomas Luckmann emphasised the interdependence of individuals and institutions (Scott 1995, 8, 13). “The individual is always cause as well as effect of the institution” (Cooley 1902/1956 ref. Scott 1995, 8). Similarly Berger and Luckmann argue that social reality – i.e. the environment in which people act and the way they perceive it regardless of their own action and perception – is a product of social interaction. For them reality is basically knowledge (i.e. what people know) and thus they emphasised – in contrast to Durkheim and Parsons – the creation of shared knowledge and belief systems in the process of institutionalisation rather than the production of rules and norms (Scott 1995, 13). Berger and Luckmann (and the researchers following them, see below) operate on the level of cognition whereas Parsons emphasised the affective (i.e. emotional) aspect in the process of institutionalisation (Gronow 2003, 14–16). According to Scott (1995, 13) the focus on cognitive systems forms the foundation for the new institutionalism in sociologically oriented research on organisations. In addition to Berger and Luckmann’s phenomenological sociology, theoretical sources for this field of institutionalism are Garfinkel’s ethnomethodology and Bourdieu’s concept of habitus (Gronow 2003, 15–16). Theorists mentioned in this context are Silverman, Meyer & Rowan, Zucker, DiMaggio & Powell and Meyer & Scott (Scott 1995, 29–31). For instance DiMaggio and Powell elaborate mechanisms – coercive, mimetic, and normative – by which institutional effects are diffused through a field of organisations (Scott 1995, 331). There are also strands of new institutionalism in sociology that have been affected by new institutionalism in economics, i.e. they incorporate the methodological individualism and hence the rational choice theory (Scott 1995, 31; Gronow 2003, 13–14). These theories consider that choices are made within institutional constraints, and that institutions can help to solve problems of collective action so that everybody benefits from co-operation. However, these sociologists emphasise normative constraints over constraints of market environment and psychological deficiencies. (Gronow 2003, 13–14.) The new institutionalism in the research of organisations inspired by sociology is relatively close to the view of Thorstein Veblen. Some even argue that Veblen should be considered as a classical sociologist together with other early American sociologists Charles Cooley, William I. Thomas and Arthur Bentley. They all base their theories on pragmatic philosophy, and institution is an essential concept for them all. But instead of taking cognition as the main

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concept they take the pragmatic assumption that action always precedes knowledge/cognition as their starting point. Drawing on pragmatic assumptions Veblen assumed that individuals are not hedonistic and passive creatures that need motives – either selfish or morally based – to start acting. Instead human is always in the process of action. Thus it is not sensible to analyse separate acts like the neo-classical economics and the new institutional economics do. Human action is a continuous process where the habitual and intellectual aspects/phases interact and affect each other. (Gronow 2003, 7–8.) Intellectual reflection (e.g. utility calculation or other criteria) is needed only when the habits become problematic for some reason and things are not proceeding as expected. The habits are thus modified by the crises. For Veblen institutions are products of the habitual phases of action (Gronow 2003, 8). This means that institutions cannot be explained solely by utilitarian (cf. new institutional economic approach) or normative (cf. traditional sociological approach) action or solely by common cognitive frameworks (cf. new institutionalism in sociological organisations research), as institutions also include habits5 whose existence individuals might not be conscious of until they become problematic. The institutions on the other hand have a feedback effect on the actions of individuals. Institutions therefore change the individuals as well, and not just the other way round (Gronow 2003, 8). The point made by Veblen – and other pragmatic sociologists – is that society (including markets) is not only an atomistic aggregate of individuals. Rather, individuals interact with each other and with the outside world through some habitualised mechanisms, e.g. institutions – which they themselves “help” to construct. This means that Veblen abandoned both methodological individualism and methodological holism (Gronow 2003, 9). Wagner (2001, 103–116) reviews the approach to institutions taken by new French social sciences (e.g. Boltanski, Thévenot, Dodier, Zimmermann, Salais, Chateauraynaud). They come close to the pragmatic view presented above in that they try to dissolve the distinction between methodological individualism and methodological holism (Wagner 2001, 105). They use the notions of situativity and social labour to emphasise the constitutive role of past and present action in the formation of institutions. Society is seen as a multitude of agreements the reaching of which requires constant interpretation of the relevant situations (i.e. social labour). The persons in conflict have to refer to conventions that are beyond themselves and that have wide spatiotemporal extension to reach a resolution/agreement. These conventions can be called institutions, and they are only justifiable under circumstances where people agree on the state of matters. But there are also those moments in which unrest and uncertainty dominate the scene. (Wagner 2001, 106–116.) Interpreted according to pragmatic sociology, institutions are born from habitual action during the moments of agreement, but face crises in the moments of unrest and uncertainty.

4.6 Positioning TIPP within the institutional research in economics, sociology and

psychology

Debates between economics and sociology are central in the development of the concept of institution. The number of definitions and problems is so large that for practical analysis

5 For Veblen habits are based on anthropological instincts that don’t materialise, however, without the influence of environment (Gronow 2003, 10). They are similar to the ability to learn a language.

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choices about the theoretical framework have to be made. Which theory to use depends on the problem and the objective of the research. In general, economics emphasises productivity and efficiency in its theory of action. Sociology – as well as psychology – on the other hand, starts more broadly from the logic of action without necessarily placing a special emphasis on efficiency. Taking the objectives of TIPP and the need to limit the theoretical framework into account, it is better to concentrate first on certain kinds of theories. Factors that speak for the economic emphasis are for instance the general starting point of TIPP, which especially considers the implementation problems of efficient policies. That is, TIPP is clearly more interested in the logic of human action from the point of view of an efficiency objective than the logic of action in general. Therefore the theories used should be compatible with this starting point. Another argument for looking more closely to economic theories could be that the transport sector has traditionally taken economics as the main theoretical background. After all, economics and engineering sciences have the mathematical approach in common. However, even though sociological accounts of institutions are mostly left outside of this framework, the psychological accounts examined in Section 4 emphasise to a large extent similar issues (perception and knowledge about the problems and policies and their effects) as sociology, especially phenomenological and pragmatic sociology. Indeed, for pragmatic sociologists the difference between psychology and sociology is blurred. They just concentrate the detailed analysis on the different phases of action: psychologists concentrating on the way individuals perceive things and sociologists concentrating on the implications and mechanisms of these perceptions on a collective level. Roughly simplifying, one could say that sociology analyses how institutions are produced through the actions and perceptions of individuals while psychology analyses how the institutions affect the action of individuals. Naturally these aspects overlap each other. For instance the psychological studies about the acceptability of transport policies have shown that people react more strongly to negative effects of policies than the positive ones, and that things receive attention only when they threaten the smoothly running status quo. This is in accordance with the pragmatic theory of action which argues that human action is habitual until problems questioning the habits arise. Since habitual action is guided by institutions, it makes sense to ask how institutions should be changed in order to change the habitual action or perception (e.g. how to make the people who favour a policy express themselves more strongly as a counterforce to those who oppose it) or in order to enforce an intellectual response instead of a habitual one. Thus, in Section 3 we have taken economics-based theories as a starting point to explore the institutions in transport policymaking, whilst in Section 4 we have combined them with novel ideas from psychology to explain them more realistically. TIPP will check on the completeness of the explanatory power of this approach during the course of case study work packages. We have not, for the moment, developed further the application of the sociological theories outlined above. However, some of the case studies in WP5 will apply them.

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5. SUGGESTED FRAMEWORK

5.1 Towards an analytical framework

In Sections 2, 3 and 4 of this Deliverable, we have established the key inputs to the overall project. In Section 2 we have identified the principal dimensions of policy and of the decision-making process, and the expected elements of each. In Section 3 we have summarised the principal theories from an economics standpoint, and have assessed their likely strengths and weaknesses. In Section 4 we have reassessed these theories from the viewpoint of psychology, and more briefly from that of sociology, and have demonstrated some areas of potential cross-fertilisation. These inputs now need to be related to the empirical work in WP3, the case studies in WPs 4, 5 and 6, and the conclusions and recommendations to be drawn in WP7. We have developed the analytical framework shown in Figure 3 as a basis for doing this. The purpose of the framework, as specified in the Description of Work, is to provide a structure for the empirical work in the subsequent work packages, to facilitate a systematic assessment of the impacts of institutional structures and processes, and hence to permit conclusions to be drawn, and to provide a basis for checking the coverage of the case studies. In addition, it will enable the case studies, and the surveys in WP3, to test the completeness of the original dimensions and elements. The framework includes a set of numbered boxes, which raise the issues which the project needs to address in a logical order; a set of numbered questions to be answered in subsequent case studies; and three sets of matrices, developed at an earlier stage in Task 2.4, which help illustrate the linkages between dimensions, theories and case studies. We now consider each of the boxes briefly in order. Where appropriate these are elaborated in later sections; these sections are followed by the matrices, and the list of questions. The dimensions and elements (Box 1) are as specified in Section 2. They contribute to several stages in the framework. Their first role is in checking on the completeness of the coverage of the case studies, and in helping to categorise those case studies. The case studies in turn and, before them, the WP3 surveys, can be used to check on the completeness of the dimensions and elements proposed in Section 2. These issues are covered by Questions 1 and 2 (Section 5.7), and illustrated by matrices 1.n (Section 5.6). The types of dimension (Boxes 2, 3 and 4) It will prove helpful at this stage to consider separately three different types of dimension: the policy dimensions of objectives, instruments and barriers (Box 2), which are assumed to be given in a particular situation, but which may lead actors (Box 3) to respond in particular ways, given the decision making processes (Box 4) within which they operate. The possible issues, responses and problems (Box 5) One of the key challenges in developing the research method in later work packages is to identify the interactions between these three types of dimension or, more particularly, the responses which actors might make in a given decision-making context when pursuing certain policies. These responses will be

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Figure 3 An analytical framework

Matrices 1. n

Dimensions Elements1 Coverage?

Completeness?

Process4

Actors3

Policies2

Possible issues/responses/problems5

Q2

Q3 Q3

CAS

E S

TUD

IESW

P 3

Q1

Q4

Matrices 2. n

Theories7

Hypotheses?6

Q5

Q6

Q9

Q7

Q8

Matrix 3

Conclusions8

WP

7

Recommendations9

Change Institutions11

Change Governance13

Decision-making structures10

Decision-making process12

Q10

Q12

Q11

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influenced by the policy issues which they face, and those responses may in turn give rise to implementation problems in the decision-making process. Their specification is prompted in general terms by Question 3 (Section 5.7). It is almost impossible to attempt to generate a comprehensive list of these issues, responses and problems, but some examples are given in Section 5.2 to illustrate the principles. In practice the developers of the case studies will have had certain issues in mind in formulating them, and the experience of the surveys in WP3 will highlight others. These two feedbacks are potentially valuable in enriching the research within the project. The hypotheses (Box 6) The most effective way of developing the conclusions and recommendations sought in WP7 is to generate a set of hypotheses which can be tested in the case studies. Ideally the same types of hypothesis should be tested in several case studies, to enable the project to assess the robustness and transferability of its conclusions. In practice this may be limited by the way in which the case studies have been generated. There are two principal sources of these hypotheses: the issues, responses and problems (Box 5) which can, as illustrated in Section 5.3, be re-specified, in a given context, as a set of hypotheses to be tested; and the theories (Box 7), which we consider below. These two sources generate Questions 5 and 6 (Section 5.7). The chosen hypotheses are then incorporated into the design of the case studies (Question 7) and tested through them (Question 8). The theories (Box 7) The theories, in Sections 3 and 4, have been identified as a source for the design of the analytical approach in the project. Their principal roles are in helping to understand what might be happening (as indicated by the arrow to Box 5 in Figure 3), in suggesting a set of hypotheses from first principles, and in some cases in providing a scientific approach to testing those hypotheses. One of the strengths of the project is that it has identified theories from a number of disciplines, and thus offers the potential for cross-fertilisation between them. We discuss this further in Section 5.4. While tests on the validity and applicability of these theories are not central to the objectives of TIPP, the project does provide an opportunity to examine and comment on the theories in this way (Question 9), and it is proposed that such checks be made within WPs 4, 5 and 6 to the extent that they appear worthwhile. Two sets of matrices were developed here in an earlier version of Task 2.4. Matrices 2.n consider the applicability of theories to different dimensions, and were designed to contribute to the process of hypothesis testing. Matrix 3 provided an assessment of the theories which appeared to be relevant to the different case studies. While these matrices have proved to be less central to the study method, they have assisted in formulating the approaches adopted in subsequent work packages, and are included in Section 5.6 for completeness. The conclusions (Box 8) Having formulated and tested a series of hypotheses, it should be relatively straightforward to draw a set of conclusions from each case study. It will be more difficult to compare these conclusions between case studies, to understand why differences arise, and to assess how widely these conclusions can be applied. These are the challenges of the final reports of the case study work packages, and of Work Package 7. The answers which give rise to these conclusions are represented by Question 10 (Section 5.7). The recommendations (Boxes 9-13) The intention is that the project will generate recommendations for changes both in institutions and in the governance of institutions. Conversely, it will not be providing recommendations on policies to be adopted; these issues have been addressed widely in other research programmes. Thus it is particularly the dimensions of decision-making processes (Box 4) which are reconsidered in developing these

47

recommendations. To clarify this, Figure 3 splits this box into its two dimensions as specified in Section 2: decision-making structures (Box 10) which specify the existing institutional structures for which the project might recommend change (Box 11); and decision-making processes (Box 12), which indicate the current approach to governance, for which the project might again recommend changes (Box 13). These governance issues could include the ways in which decisions are reached, and the ways in which policy decisions are implemented. The arrows which give rise to these recommendations in WP7 are represented by Questions 11 and 12 (Section 5.7). We discuss this approach more fully in Section 5.5.

5.2 Issues, responses and problems

As noted above, it would be virtually impossible to generate a comprehensive list of the policy issues which actors face, the responses which they might make and the implementation problems which might result. Section 2.5 lists 11 groups of actors, each of whom might be expected to respond in a particular way in pursuit of a given policy objective, in deciding whether to implement a given policy instrument, and in trying to overcome a given barrier. Those responses will in turn be influenced by the decision-making structure within which that actor operates, and the decision-making processes which are in place. Moreover, we cannot expect every actor in a given set of these circumstances to act in the same way. It is for this reason that we consider it better to use the surveys from WP3 and the case studies in WPs 4-6 to generate a series of relevant types of issue, response and problem. However, the dimensions in Boxes 2, 3 and 4 provide a structured approach to identifying possible issues, responses and problems, in Box 5. What follows is an example of how this might be done, focusing on a hypothetical case study of public transport service levels in an urban area. The key actors involved are likely to be politicians, government officials, service providers and users; in particular circumstances interest groups, the general public and the media might also become involved. As far as objectives are concerned, these will be determined by politicians and government officials, and might include efficiency, environment and safety, and equity. Since a solution which satisfies efficiency might well be very different from one which satisfies equity, it will be important to understand the relative importance of these objectives. At the same time the service provider will have an objective of profit maximisation, which may well be in conflict with those of local government. In this hypothetical case study, we have specified the instrument as public transport service level, but it is worth noting that even within this there are variants in terms of route coverage, frequency and time of day. The actors will face some barriers, of which the most serious are likely to be finance, and possibly public acceptability. Legal and institutional barriers are likely to be reflected in the decision making structures below. The ability of the government officials to determine the appropriate service level will depend on the institutional structure in which they operate. If they have full responsibility and operate the bus service themselves, they have freedom of choice within the constraints

48

imposed by the barriers. If they are using funding provided by central or regional government they will need also to satisfy that higher tier of government that their proposals are justifiable. If legislation requires them to franchise services, then they will be dependent on the responses of competing service providers. If they operate in a deregulated environment, they may have little ability to determine service levels, other than through negotiation with existing service providers. If they pursue a participative approach, they are more likely to be able to overcome any barriers of public acceptability. Finally, the approach which they adopt will be determined by their decision-making processes. For example, if they start by assessing problems, they might expect to have a clearer idea of the service level needs. If they generate alternatives, they are more likely to identify an appropriate solution. If they carry out an appraisal against their objectives, they are more likely to select the most appropriate solution. If they use information flows effectively, this will support all of these decisions. If they implement speedily they will achieve benefits more rapidly, but might generate some opposition from those who dislike change. If they monitor the effects of the implemented changes, they will be better able to overcome any adverse impacts, and to improve on future decisions. In this simple, and almost certainly incomplete, example, the issues are how to specify appropriate service levels to satisfy given objectives, within a known set of barriers and constraints, and given a particular decision-making structure. The responses can range from implementing the optimal set of changes, to negotiating with the service provider a set which balances local government and the service provider’s objectives, to implementing that subset of these which does not attract undue public opposition, to doing nothing because the problem becomes too complicated or expensive to resolve. The resulting problems can arise, for example, for local government through under-achievement, or decisions which weaken their future negotiating stance, for service providers through poor profitability, and for users through poor service coverage or reduced services. We advocate a similar, structured approach to identifying these possible responses in other case study contexts.

5.3 Hypotheses

In a similar vein, it would be virtually impossible to generate a full set of testable hypotheses from first principles; as illustrated in Section 5.2, there are simply too many combinations of dimensions to be considered. However, the structured analysis, case study by case study, advocated in Section 5.2, should provide a clear starting point for specifying hypotheses. This is illustrated, for the same hypothetical case study, below. As noted in Section 5.1 and Figure 3, the theories are another source of possible hypotheses. The hypotheses resulting from the theories will be at a more general level, and can be compared with those arising from specific case studies. Again, this is illustrated for our hypothetical case study below. It is recommended that both sources should be used for generating hypotheses. In Section 5.2 we considered the hypothetical case study of public transport service levels in an urban area. Considering the issues in the same order that they are presented there, the following possible hypotheses emerge:

49

• The specification of the solution will depend on the objectives of the local authority, the clarity with which they are expressed, and the extent of any conflicts between those objectives.

• Financial barriers will be particularly acute with this policy instrument, and will influence the chosen solution.

• Local authorities with full direct control of public transport service levels will be better able to implement their chosen solution.

• Requirements imposed by regional or central government will restrict choice and delay the process of design and implementation.

• Where franchising operates, the resulting solution will depend on the way in which the franchise terms are specified, the degree of competition between potential operators, and the local authority’s approach to negotiating with them.

• In a deregulated environment, local authorities will be less likely to be able to implement effective solutions.

• A participatory approach may lengthen the implementation process but will reduce the risk of opposition to the chosen scheme.

• A problem-based approach will facilitate a clearer specification of alternative solutions.

• An objective-based appraisal of the alternatives will facilitate the choice of the most appropriate solution.

• Speedy implementation will achieve benefits more rapidly, but may generate more opposition.

• Monitoring subsequent to implementation will assist in overcoming adverse impacts, and improving knowledge on the performance of policy instruments.

Some of these hypotheses are self-evident, while others will be particularly difficult to test. However, they provide a long list from which the most appropriate can be selected. Turning to the theories, the following possible hypotheses emerge:

• Game theory o The outcome of a franchising model depends on the ways in which the rules of

the game are specified, and the negotiating approach adopted by the local authority.

o In a deregulated environment, the service provider determines the outcome, and the local authority has little opportunity to influence it.

• Institutional economics o Knowledge management can reduce the dangers of imperfect information,

provided that it is applied at each stage in the decision-making process. • Regulatory theory

o The adoption of franchising, compared with the regulated monopoly, reduces the likelihood of market failure in the provision of appropriate service levels.

o A deregulated environment, as compared with franchising, further reduces the likelihood of market failure.

• Fiscal federalism o Multiple levels of government impede effective policy implementation.

• Psychological theories o Perception of problems, and of the effectiveness of the chosen solution, will

influence the specification of solutions.

50

o Participation will assist in resolving differences in perceptions between local government and users.

Some of these theory-driven hypotheses restate those developed from the standpoint of issues and responses; others raise additional questions. They can be combined into a fuller set, which will almost certainly be too long to be tested fully. At this stage it will be important to determine which are the most important, and which can most readily be tested and compared across the case studies. Careful consideration is needed as to the maximum number of hypotheses which can sensibly be tested.

5.4 Theories

The review of theories in Sections 3 and 4 was designed to help inform the project, particularly in the generation of hypotheses, as indicated in Section 5.3. It is not an objective of the project to conduct a formal assessment or development of these theories. However, the opportunity will arise to consider, in the later stages of the project, whether particular theories have proved to be particularly informative, and whether others appear to have been less applicable. It will be possible to do this through the testing of hypotheses in the case studies. Where a hypothesis relates to a specific theory, as suggested in the hypothetical case study in Section 5.3, and is confirmed in the case study in which it is tested, this will serve as a simple reinforcement of the underlying theory. Where a similar hypothesis is tested in a number of case studies, and confirmed in all of them, this will further reinforce the applicability of that theory. Conversely, failure to confirm a hypothesis might raise questions about the underlying theory in general, or in its application to particular contexts. One of the particular strengths of the project is that it brings together theories from economics, psychology and, to a lesser extent, sociology, and it is already clear from Section 4 that there are opportunities for cross-fertilisation between them. This will be a particular focus of WP4, and some of the WP5 case studies will also provide the opportunity to consider combinations of theories. The matrices which relate theories to dimensions (matrices 2.n) and theories to case studies (matrix 3) in Section 5.6 were designed to help identify the potential for such cross-fertilisation. They are to be read as indicating theories which might be relevant to a particular context, alone or in combination with other identified theories.

5.5 Conclusions and recommendations

Within each of the case study work packages, the final task will be to draw together the results of the individual case studies and draw conclusions, which might in some cases be specific to a case study, and in others potentially more generally applicable. It is intended that these conclusions will relate directly to the hypotheses, rather than being simple descriptions of the case study characteristics. On this basis, WP7 will, in turn, combine the conclusions from the three case study work packages and present them as a common set, while indicating how widely applicable or specific they are, and highlighting any inconsistencies in results.

51

These conclusions then need to be used to generate recommendations. As noted in Section 5.1, the recommendations will focus on changes which might be made in institutional structures, and in the governance of institutions. It is not intended to draw conclusions on the effectiveness of particular policy instruments, but rather to identify ways in which effective policy instruments can be more successfully identified, designed and implemented. These issues will need to be addressed at all scales from local, through regional to national and international decision-making, and for all modes and for inter-modal applications. The proposal in Section 5.1 is that WP7 considers each of the elements of decision-making structures (Figure 3, Box 10) in turn, and assesses for each whether the conclusions suggest that one particular form of structure is more effective than another, in general or in a given context. To do this effectively, it will be important to reflect the full range of elements of decision-making structures. At present the list in Section 2.6 is likely to be incomplete, and the checks for completeness against WP3 and the case studies (Figure 3, Question 2) will be important in ensuring that an appropriate set of recommendations is considered. While in an ideal world changes in institutional structure may be the best way to deliver improved implementation, in practice institutional change takes time, and can cause disruption. It may well be better, therefore, to consider changes in the way in which existing institutions operate, to enable them to perform more effectively. These are the changes in governance to be considered in Box 13 of Figure 3. This process will consider in turn each of the elements of the decision-making process which are highlighted in Section 2.7, and assess for each whether the conclusions suggest that one particular approach is likely to be more effective than another, in general or in a specific context. Once again, the current list of elements in Section 2.7 is likely to be incomplete, and should be checked for completeness against WP3 and the case studies to ensure that an appropriate set of recommendations is considered.

5.6 The matrices

As noted in Section 5.1, a set of matrices was developed at an earlier stage in Task 2.4 which was designed to help in identifying the linkages between dimensions, theories and case studies. They have already been applied in the early stages of work on WPs 3-6, and are repeated here for completeness. The first set relates the first four dimensions to case studies:

• Matrix 1.1 relates objectives to case studies; • Matrix 1.2 relates instruments to case studies; • Matrix 1.3 relates barriers to case studies; and • Matrix 1.4 relates actors to case studies.

No attempt was made to provide similar matrices for the dimensions of decision-making structures and processes, largely because the case study descriptions were often less clear in this regard. Each provides a simple tick to indicate that a case study covers a particular element, and is based on the authors’ understanding of the case studies. These matrices are useful in highlighting gaps in case study coverage, and also in ensuring that case study descriptions are

52

comprehensive. They suggest the following elements on which case studies might usefully focus:

• clarification of the policy objectives being pursued; • coverage of information and awareness measures; • consideration of practical and technological barriers; • the role of politicians, experts, the public and the media as actors.

These matrices thus provide a first answer to Question 1 in Figure 3. They should, however, be checked in greater detail as the case studies develop, both to ensure that they are accurate and to help in defining the case studies more tightly. At a later stage the matrices can be updated to highlight other elements, and to provide similar coverage for decision-making structures and processes, as input to the conclusions and recommendations in WP7. The second set of matrices was an attempt to relate theories to dimensions:

• Matrix 2.1 considers the applicability of theories to objectives; • Matrix 2.2 considers the applicability of theories to instruments; • Matrix 2.3 considers the applicability of theories to barriers; and • Matrix 2.4 considers the applicability of theories to actors.

Once again, no matrices were produced for the dimensions of decision-making structures or processes; this might be a useful addition for WP7. On this occasion, applicability was assessed as weak (*), moderate (**) or strong (***), with no assessment signifying uncertainty. This was designed to be a preliminary assessment to suggest theories which might be considered, for a given dimension, in developing relevant hypotheses. In addition it helped in identifying opportunities for the combination of theories from different disciplines. It was also intended to facilitate any later assessment of the applicability and relevance of specific theories to the study of the role of institutions in transport policy. It was not intended that these matrices should limit the range of theories considered. Finally, Matrix 3 combined these two sets to indicate the potential applicability of theories to case studies, using the same notation as Matrices 2.1-4. This matrix was designed to help in specifying relevant hypotheses for each case study, which could in turn be compared across case studies. It is only as robust as the assessment in Matrices 2.1-4, and the same caveats apply as for those matrices.

53

Mat

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54

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57

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59

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61

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62

5.7 The research questions Finally, Figure 3 identifies a set of 12 Questions to be asked at different stages of the research process. These questions are a development of those raised in the Description of Work. They are listed below, with an indication for each of the WPs in which they should be asked:

1. How comprehensive are the case studies in their coverage of the dimensions and elements? This is to be answered in the fuller specification of case studies in Tasks 4.1, 5.1 and 6.1. Matrices 1.n provide an initial check.

2. How complete is the categorisation of dimensions and elements? This is to be answered by consideration of the results of the WP3 surveys and of the case studies. It will lead to a revised, and final set of dimensions in WP7, which will be particularly important in answering Questions 11 and 12.

3. What issues, responses and problems are likely to arise when considering the pursuit of a given policy by a given actor in a given decision-making structure and process? The approach to answering this question is illustrated in Section 5.2 above, and is to be pursued in each case study.

4. What further evidence is there of such issues, responses and problems from the results of the WP3 surveys? This is covered in D3.

5. What hypotheses should be tested in considering the pursuit of a given policy by a given actor in a given decision-making structure and process? The approach to answering this question is illustrated in Section 5.3 above. It is to be answered in each case study by considering the appropriate answers to Questions 3 and 4.

6. What hypotheses should be tested in the light of the relevant theories? Again, the approach to answering this question is illustrated in Section 5.3. It is to be answered, alongside Question 5, in each case study. Matrices 2.n and 3 provide initial guidance on the theories which might be considered.

7. What is the evidence in the case study which might support or refute each case study? This question is to be answered in each case study.

8. Is each hypothesis proven or otherwise in the relevant case study? This question is to be answered in drawing the conclusions of each case study, and in the comparison of case studies in WPs 4-6.

9. Do the results of the hypothesis tests support the underlying theories in general or in particular contexts? As noted in Section 5.4, this is not a central research question for the project, but it would be informative to answer it, both in the conclusions to WPs 4-6 and in WP7.

10. What conclusions can we draw from the set of hypothesis tests? This question is the focus of Task 7.1.

11. What recommendations can we make concerning possible changes to institutional structures? This question will be answered, within Task 7.2, by comparing the set of conclusions with the full set of decision-making structures (as expanded following Question 2).

12. What recommendations can we make concerning possible changes to governance? This question will be answered, within Task 7.2, by comparing the set of conclusions with the full set of decision-making processes (as expanded following Question 2).

The key methodological questions are questions 3, 5, 6 and 7. It will be important to ensure that these are addressed in each case study. Our hypothetical case study in sections 5.2 and 5.3 above indicates how this might be done.

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6. CONCLUSIONS AND RECOMMENDATIONS

In this Deliverable we have summarised our work in preparing an overall theoretical framework for the conduct of the remainder of the project. Two different strands of work underpin this framework: a taxonomy of the dimensions and categories of the problem, set out in Section 2 and a review of the underlying theories, presented in Sections 3 and 4. In Section 5 we have outlined an analytical framework for the conduct of the remainder of the project. This starts with the dimensions and elements from Section 2, and uses them to check the coverage of the case studies, and the national surveys and case studies subsequently to test the completeness of those dimensions and elements. The dimensions are then used to identify the possible issues, responses and problems which might arise in the pursuit of a particular policy by a given actor working within a given decision-making structure and processes. An illustration of how this is done is given, using a hypothetical case study of service level improvements in an urban area. These potential issues, responses and problems are then further checked against the national surveys. The identified issues, responses and problems are used in turn to specify a series of hypotheses to be tested in the case studies. These hypotheses are in turn reinforced by reference to the underlying theories reviewed in Sections 3 and 4. Again, this process is illustrated with the case study of service level improvements. A priority set of hypotheses is then agreed and tested in the case studies. While not central to the objectives of the project, this also provides an opportunity to assess the relevance of the underlying theories. Finally, the hypothesis tests are compared across case studies and sets of case studies, and used to formulate a set of conclusions. These in turn are assessed against the identified elements of decision-making structures and processes to develop recommendations for changes in institutional structures and in institutional governance. We recommend that the twelve questions listed in Section 5.7 be answered at the following stages in the subsequent work packages:

• Questions 1, 3, 5, 6 and 7 in the preparation of each case study; • Questions 2 and 4 from the results of the national surveys; • Question 2 also from the results of the case studies; • Question 8 from the results of the individual case studies and the comparisons across

case studies; • Question 9 from the results of the hypothesis tests in the case studies; • Question 10 in the final technical work package based on the answers to Question 8; • Questions 11 and 12 in the final technical work package based on the answers to

Questions 2 and 10.

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