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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. 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.
  2. J. Luis Guasch & Jean-Jacques Laffont & Stéphane Straub, 2007. "Concessions of infrastructure in Latin America: Government-led renegotiation," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 22(7), pages 1267-1294.
  3. World Bank, 2009. "Good Governance in Public-Private Partnerships : A Resource Guide for Practitioners," World Bank Other Operational Studies 12665, The World Bank.
  4. Elisabetta Iossa & David Martimort, 2009. "The Theory of Incentives Applied to the Transport Sector," The Centre for Market and Public Organisation 09/210, Department of Economics, University of Bristol, UK.
  5. repec:hal:wpaper:hal-00622963 is not listed on IDEAS
  6. 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.
  7. Elisabetta Iossa & David Martimort, 2008. "The Simple Micro-Economics of Public-Private Partnerships," The Centre for Market and Public Organisation 08/199, Department of Economics, University of Bristol, UK.
  8. 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.
  9. J. Luis Guasch, 2004. "Granting and Renegotiating Infrastructure Concessions : Doing it Right," World Bank Publications, The World Bank, number 15024, July.
  10. 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.
  11. 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.

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