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Concessions of infrastructure in Latin America: Government-led renegotiation

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  • J. Luis Guasch

    (World Bank and University of California, San Diego, California, USA)

  • Jean-Jacques Laffont
  • Stéphane Straub

    (School of Economics, University of Edinburgh, Edinburgh, UK)

Abstract

This paper analyzes government-led renegotiations in infrastructure concession contracts in Latin America, based on the same sample used in Guasch, Laffont and Straub (2003) to examine firm-led renegotiations. After extending the theoretical framework to a multiple-period context in which both Pareto-improving and rent-shifting renegotiations at the initiative of the government can occur, we develop an original instrumental variable strategy to address the issue of contract endogeneity and derive empirical results. While some of the main insights concerning the importance of having a regulator in place when awarding concessions and the fragility of price cap regulatory schemes are unchanged, significant differences arise with respect to the effect of investment and financing, as well as the corruption variables. We provide evidence that a good regulatory framework is especially important in contexts with weak governance and political opportunism. Copyright © 2007 John Wiley & Sons, Ltd.

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File URL: http://hdl.handle.net/10.1002/jae.987
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File URL: http://qed.econ.queensu.ca:80/jae/2007-v22.7/
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Bibliographic Info

Article provided by John Wiley & Sons, Ltd. in its journal Journal of Applied Econometrics.

Volume (Year): 22 (2007)
Issue (Month): 7 ()
Pages: 1267-1294

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Handle: RePEc:jae:japmet:v:22:y:2007:i:7:p:1267-1294

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  1. Antonio Estache & J.L. Guasch & Lourdes Trujillo, 2003. "Price caps, efficiency pay-offs and infrastructure contract renegotiation in Latin America," ULB Institutional Repository 2013/44100, ULB -- Universite Libre de Bruxelles.
  2. Besley, Timothy J. & Coate, Stephen, 2000. "Elected Versus Appointed Regulators: Theory And Evidence," CEPR Discussion Papers 2381, C.E.P.R. Discussion Papers.
  3. Oliver Hart & John Moore, 1985. "Incomplete Contracts and Renegotiation," Working papers 367, Massachusetts Institute of Technology (MIT), Department of Economics.
  4. J. Guasch & Jean-Jacques Laffont & Stéphane Straub, 2006. "Renegotiation of Concession Contracts: A Theoretical Approach," Review of Industrial Organization, Springer, vol. 29(1), pages 55-73, September.
  5. J. Luis Guasch & Jean-Jacques Laffont & Stephane Straub, 2004. "Renegotiation of Concession Contracts in Latin America," ESE Discussion Papers 103, Edinburgh School of Economics, University of Edinburgh.
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  9. Patrick Bajari & Robert McMillan & Steven Tadelis, . "Auctions versus Negotiations in Procurement: An Empirical Analysis," Working Papers 02007, Stanford University, Department of Economics.
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  13. Guasch, J. Luis & Laffont, Jean-Jacques & Straub, Stephane, 2005. "Infrastructure concessions in Latin America : government-led renegotiations," Policy Research Working Paper Series 3749, The World Bank.
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  16. Eduardo Engel & Ronald Fischer & Alexander Galetovic, 2003. "Privatizing Highways in Latin America: Fixing What Went Wrong," JOURNAL OF LACEA ECONOMIA, LACEA - LATIN AMERICAN AND CARIBBEAN ECONOMIC ASSOCIATION.
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  19. Cecile Aubert & Jean- Jacques Laffont, 2005. "Political renegotiation of regulatory contracts," Game Theory and Information 0506002, EconWPA.
  20. Oliver D. Hart & Jean Tirole, 1987. "Contract Renegotiation and Coasian Dynamics," Working papers 442, Massachusetts Institute of Technology (MIT), Department of Economics.
  21. Jean-Jacques Laffont & Jean Tirole, 1993. "A Theory of Incentives in Procurement and Regulation," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262121743, December.
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  23. Holtz-Eakin, Douglas, 1994. "Public-Sector Capital and the Productivity Puzzle," The Review of Economics and Statistics, MIT Press, vol. 76(1), pages 12-21, February.
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