Competitive tendering, ownership and cost efficiency in road maintenance services in Sweden: A panel data analysis

Abstract

Abstract This paper uses econometric methods to study the cost efficiency of road maintenance provision in Sweden for the first time. The novelty lies in the application of econometric techniques to a new and rich panel dataset (73 contracts; 11 years, 2004–2014) with a wide range of variables and approaches to controlling for heterogeneity (including weather variation). The analysis is applied in the context of a sector where all road maintenance contracts are subject to competitive tendering, but with a state-run provider competing against private firms. The key focus is whether, even after competitive tendering, efficiency differences remain between the state provider and private entrants. We find that the state-run provider has significantly higher costs (between 8 and 20%) than private firms despite holding 60% of the market. The results suggest that substantial savings are possible through opening up road maintenance to the private sector through competition for the market; but that in Sweden, the tendering process is still not working optimally. Further research is needed to understand why the current cost gap persists between public and private providers, despite competitive tendering having been present across the whole market for several years.