The purpose of this paper is to present an analysis of the link between decentralisation, intergovernmental competition/emulation and efficiency in the context of the transport sector. To meet this objective, we have divided our paper into three sections. The first section briefly presents various definitions of decentralisation, recalls the principles of Musgrave and Oates in that area and concludes with a discussion of the theoretical impacts of decentralisation on competitiveness and efficiency. The second part presents the salient points of the literature on decentralisation and transport with regard to four modes, namely road, rail, ports and airports, and ends with a discussion of fiscal decentralisation in relation to transport. The third section presents empirical findings regarding the general impact of decentralisation on various performance indicators in the transport sector.

Transportation is, at least in part, a government responsibility. It is an area in which market failures abound: there may be declining marginal costs; positive and negative externalities; pure public goods; or merit goods. Left to itself, the sector will not lead to optimal outcomes. This may not necessarily justify a government intervention, as was thought thirty years ago, because government failures also have to be taken into account. But these market failures provide at least a presumption for government intervention. In practice, upon examination, this presumption is often transformed into justification, and in all countries “government” is an active player in the transportation field.

The concept of “subsidiarity” is defined as the principle according to which decisions should be taken at the lowest decision-making level possible, given the objective pursued. For pricing policy in the transport sector, subsidiarity is understood to mean that while, for example, levying charges and taxes on heavy goods vehicles is within the competence of the European Union (EU) because such vehicles compete in an international market, determining the principles for an urban pricing scheme is best dealt with by national or local authorities. As regards transport infrastructure policy, it is stated in the EC Treaty that the Union would not be able to take decisions on projects without the agreement of the Member State concerned. It should, however, be noted that subsidiarity is not a static notion but it evolves with time; transport policy having been brought into the discussion only in 1996 under the Maastricht Treaty.

Political economy tries to incorporate the incentives and constraints which are at play within a democracy in the analysis of governmental institutions. In the context of decentralisation versus centralisation the effect of interest groups, the scope and incentives for innovation and the career concerns of public officials can differ. The broader economic context and what type of policies have priority determine in theory whether the trade-off is in favour of the decentralised or centralised provision of transport. Empirical evidence for EU countries in 2000 suggests, however, that there is a higher level of traffic safety, measured by an indicator of traffic deaths, in countries with more decentralised provision of public goods. Increasing the degree of expenditure decentralisation by 0.10, which, for instance, is the difference in decentralisation between Italy (0.25) and Germany (0.35), is associated with a reduction by 2.2 traffic deaths per 100 000 inhabitants. The benefit of decentralisation is, however, contingent on the presence of strong institutions and low levels of corruption.

With cyclical variations in its importance, decentralisation continues to remain on the agenda of research and policy discussions. The decentralisation of transport policies forms part of this general discussion. Much of the recent impetus of the discussion is derived from the generally critical review of economic activities which have traditionally been assigned to the public sector. The need for such a review was often claimed on the basis of the expectation that the private organisation of these activities would lead to productivity gains and a reduction of the burden for the taxpayer.