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A theory of BOT concession contracts

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Author Info

  • AURIOL, Emmanuelle

    (TSE (ARQADE and IDEI), Université de Toulouse I, F-31042 Toulouse, France)

  • PICARD, Pierre M.

    ()
    (CREA, Université de Luxembourg, Luxembourg and Université catholique de Louvain, CORE, B-1348 Louvain-la-Neuve, Belgium)

Abstract

In this paper, we discuss the choice for build-operate-and-transfer (BOT) concessions when governments and firm managers do not share the same information regarding the operation characteristics of a facility. We show that larger shadow costs of public funds and larger information asymmetries entice governments to choose BOT concessions. This result stems from a trade-off between the government's shadow costs of financing the construction and the operation of the facility and the excessive usage price that the consumer may face during the concession period. The incentives to choose BOT concessions increase as a function of informational asymmetries between governments and potential BOT concession holders and with the possibility of transferring the concession project characteristics to the public authority at the termination of the concession.

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Bibliographic Info

Paper provided by Université catholique de Louvain, Center for Operations Research and Econometrics (CORE) in its series CORE Discussion Papers with number 2011019.

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Date of creation: 01 Mar 2011
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Handle: RePEc:cor:louvco:2011019

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Keywords: public-private-partnership; privatization; adverse selection; regulation; natural monopoly; infrastructure; facilities;

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Citations

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Cited by:
  1. Daniel Danau & Annalisa Vinella, 2012. "Public-private contracting under limited commitment," Economics Working Paper Archive (University of Rennes 1 & University of Caen) 201227, Center for Research in Economics and Management (CREM), University of Rennes 1, University of Caen and CNRS.
  2. Gilles Edouard Espinosa & Caroline Hillairet & Benjamin Jourdain & Monique Pontier, 2013. "Reducing the debt : is it optimal to outsource an investment?," Working Papers hal-00824390, HAL.
  3. Gilles Edouard Espinosa & Caroline Hillairet & Benjamin Jourdain & Monique Pontier, 2013. "Reducing the debt : is it optimal to outsource an investment?," Papers 1305.4879, arXiv.org.

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