Over the past two decades the bus industry in many countries has been involved in a process of economic deregulation, competitive regulation, and privatisation. Among the policy practices designed to increase competition, competitive tendering represents a popular policy intervention. The focus of competitive tendering has been essentially on cost efficiency and cost effectiveness; regulators have hitherto been unsuccessful in developing a robust specification of service quality levels. In this paper the authors propose a method of filling in a missing link in the specification of contract performanceÐ service effectiveness Ðwhich measures the (generalised) effectiveness of a service in satisfying passengers across a set of relevant dimensions that capture customer satisfaction.
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