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Political renegotiation of regulatory contracts

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Author Info

  • Cecile Aubert

    (Universite Paris Dauphine, Eurisco)

  • Jean- Jacques Laffont

    (IDEI, Toulouse)

Abstract

Governmental contracts may be renegotiated after political changes. Current governments can anticipate this and strategically distort contracts to influence renegotiation outcomes. In this sequential common agency game, the initial contract impacts elements of the renegotiation process: outside options (a `leverage' effect), and the beliefs of the new government through partial information revelation (a `strategic' effect). We characterize the optimal initial contract, as a function of political stability, time preference, and profits appropriation by the initial government. It always entails either full separation or strategic, partial, information revelation. Last, institutional rules imposing immediate payments to the firm help limit output distortions.

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File URL: http://128.118.178.162/eps/game/papers/0506/0506002.pdf
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Bibliographic Info

Paper provided by EconWPA in its series Game Theory and Information with number 0506002.

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Length: 46 pages
Date of creation: 15 Jun 2005
Date of revision:
Handle: RePEc:wpa:wuwpga:0506002

Note: Type of Document - pdf; pages: 46
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Web page: http://128.118.178.162

Related research

Keywords: Renegotiation; Political uncertainty; Regulation.;

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Cited by:
  1. Elisabetta Iossa & David Martimort, 2008. "The Simple Micro-Economics of Public-Private Partnerships," CEIS Research Paper 139, Tor Vergata University, CEIS, revised 15 Feb 2013.
  2. Guasch, J. Luis & Laffont, Jean-Jacques & Straub, Stephane, 2003. "Renegotiation of concession contracts in Latin America," Policy Research Working Paper Series 3011, The World Bank.
  3. Guasch, Jose Luis & Laffont, Jean-Jacques & Straub, Stéphane, 2007. "Concessions of Infrastructure in Latin America: Governement-led Renegotiation," Open Access publications from University of Toulouse 1 Capitole http://neeo.univ-tlse1.fr, University of Toulouse 1 Capitole.
  4. Philippe Gagnepain, & Marc Ivaldi, 2009. "Contract choice, incentives and political capture in public transport services," Economics Working Papers we096641, Universidad Carlos III, Departamento de Economía.
  5. Guasch, J. Luis & Laffont, Jean-Jacques & Straub, Stéphane, 2008. "Renegotiation of concession contracts in Latin America: Evidence from the water and transport sectors," International Journal of Industrial Organization, Elsevier, vol. 26(2), pages 421-442, March.
  6. Iossa, Elisabetta & Martimort, David, 2009. "The Theory of Incentives Applied to the Transport Sector," Open Access publications from University of Toulouse 1 Capitole http://neeo.univ-tlse1.fr, University of Toulouse 1 Capitole.
  7. 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.
  8. Gagnepain, Philippe & Ivaldi, Marc, 2010. "Contract Choice, Incentives, and Political Capture in the Public Sector," CEPR Discussion Papers 8053, C.E.P.R. Discussion Papers.
  9. Antonio Estache & L. Wren-Lewis, 2008. "Towards a Theory of Regulation for Developing Countries: Following Laffont's Lead," Working Papers ECARES 2008_018, ULB -- Universite Libre de Bruxelles.
  10. Philippe Gagnepain & Marc Ivaldi, 2009. "Contract choice, incentives, and political capture in public transport services," Université Paris1 Panthéon-Sorbonne (Post-Print and Working Papers) hal-00622963, HAL.

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