Auctions for Infrastructure Concessions with Demand Uncertainty and Unknown Costs
AbstractAuction mechanisms commonly used in practice for awarding infrastructure concession contracts induce a bias towards the selection of concessionaires who are optimistic about demand, but are not necessarily cost-efficient. This helps to explain the frequent renegotiation of concessions observed in practice. This paper shows that the fixed-term nature of contracts is the key element for selection errors, and it proposes a better alternative mechanism based on flexible-term contracts. This new auction mechanism reduces the probability of selection errors and contract renegotiation, and it is simple enough to constitute a good option for concessions in sectors like transport and public utilities.
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Bibliographic InfoPaper provided by University Library of Munich, Germany in its series MPRA Paper with number 12023.
Date of creation: 2001
Date of revision:
concessions; auctions; renegotiation; infrastructure;
Find related papers by JEL classification:
- D44 - Microeconomics - - Market Structure and Pricing - - - Auctions
- L91 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - Transportation: General
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