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A Theory of BOT Concession Contracts

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  • Emmanuelle Auriol

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

  • Pierre M. Picard

    ()
    (CREA, University of Luxembourg (Luxembourg), and CORE, Université catholique de Louvain (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 ex-ante informational asymmetries between governments and potential BOT concession holders and with the possibility of transferring the concession cost characteristics to public firms at the termination of the concession.

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Bibliographic Info

Paper provided by Center for Research in Economic Analysis, University of Luxembourg in its series CREA Discussion Paper Series with number 11-04.

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Date of creation: 2011
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Handle: RePEc:luc:wpaper:11-04

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

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References

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Cited by:
  1. 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.
  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. Daniel Danau & Annalisa Vinella, 2012. "Public-private contracting under limited commitment," Economics Working Paper Archive (University of Rennes 1 & University of Caen), Center for Research in Economics and Management (CREM), University of Rennes 1, University of Caen and CNRS 201227, Center for Research in Economics and Management (CREM), University of Rennes 1, University of Caen and CNRS.

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