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BOT projects: Incentives and efficiency

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  • Qiu, Larry D.
  • Wang, Susheng

Abstract

In recent years, governments have been increasingly adopting Build-Operate-Transfer (BOT) contracts for large infrastructure projects. However, BOT contracts have received little attention from economists. The apparent agency problem in BOT projects has never been analyzed. In this paper, we develop a model to examine the incentives, efficiency and regulation in BOT contracts. We show that a BOT contract with a price regulation during the concession period and a license extension after the concession period is capable of achieving full efficiency. Both license extension and price control are observed in many real-world BOT projects. We also investigate the efficiency in such contracts by considering other factors, including time consistency, price ceiling, foreign ownership, and the lack of price regulation.

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Bibliographic Info

Article provided by Elsevier in its journal Journal of Development Economics.

Volume (Year): 94 (2011)
Issue (Month): 1 (January)
Pages: 127-138

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Handle: RePEc:eee:deveco:v:94:y:2011:i:1:p:127-138

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Web page: http://www.elsevier.com/locate/devec

Related research

Keywords: BOT Infrastructure Incentives Monopoly Regulation License policy;

References

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  1. Brickley, James A & Misra, Sanjog & Van Horn, R Lawrence, 2006. "Contract Duration: Evidence from Franchising," Journal of Law and Economics, University of Chicago Press, vol. 49(1), pages 173-96, April.
  2. Dewatripont, M & Maskin, E, 1995. "Credit and Efficiency in Centralized and Decentralized Economies," Review of Economic Studies, Wiley Blackwell, vol. 62(4), pages 541-55, October.
  3. Auriol, Emmanuelle & Picard, Pierre, 2008. "Government Outsourcing: Public Contracting with Private Monopoly," IDEI Working Papers 382, Institut d'Économie Industrielle (IDEI), Toulouse.
  4. Kornai, Janos, 2000. "What the Change of System from Socialism to Capitalism Does and Does Not Mean," Scholarly Articles 3634160, Harvard University Department of Economics.
  5. Ehrlich, Isaac & Georges Gallais-Hamonno & Zhiqiang Liu & Randall Lutter, 1994. "Productivity Growth and Firm Ownership: An Analytical and Empirical Investigation," Journal of Political Economy, University of Chicago Press, vol. 102(5), pages 1006-38, October.
  6. Martimort, David & Pouyet, Jérôme, 2006. "'Build It or Not': Normative and Positive Theories of Public-Private Partnerships," CEPR Discussion Papers 5610, C.E.P.R. Discussion Papers.
  7. Jeffry M. Netter & William L. Megginson, 2001. "From State to Market: A Survey of Empirical Studies on Privatization," Journal of Economic Literature, American Economic Association, vol. 39(2), pages 321-389, June.
  8. Nandini Gupta, 2005. "Partial Privatization and Firm Performance," Journal of Finance, American Finance Association, vol. 60(2), pages 987-1015, 04.
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Citations

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Cited by:
  1. Emmanuelle Auriol & Pierre M. Picard, 2011. "A Theory of BOT Concession Contracts," CREA Discussion Paper Series 11-04, Center for Research in Economic Analysis, University of Luxembourg.
  2. Niu, Baozhuang & Zhang, Jie, 2013. "Price, capacity and concession period decisions of Pareto-efficient BOT contracts with demand uncertainty," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 53(C), pages 1-14.
  3. Feng, Zhuo & Zhang, Shui-Bo & Gao, Ying, 2014. "On oil investment and production: A comparison of production sharing contracts and buyback contracts," Energy Economics, Elsevier, vol. 42(C), pages 395-402.

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