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Price caps, efficiency pay-offs and infrastructure contract renegotiation in Latin America

Author

Listed:
  • Antonio Estache
  • J.L. Guasch
  • Lourdes Trujillo

Abstract

Twenty years ago, as the United Kingdom was getting ready to launch the privatization of its public services, Professor Littlechild developed and operationalized the concept of price caps as a regulatory regime to control for residual monopoly conditions in those services. Ten years later, Latin American countries, as they embarked into their own infrastructure reforms, also adopted the price cap regulatory model. Relying on a large data base on the factors driving contract renegotiation in the region and a survey of the literature on efficiency gains, the authors assess the impact of this regulatory regime in Latin America. They show that while the expected efficiency gains were amply achieved, these gains were seldom passed on to the users. Instead they were shared by the government and the firms. Moreover, the adoption of price caps implied higher costs of capital and hence, tariffs, and brought down levels of investment.
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Suggested Citation

  • Antonio Estache & J.L. Guasch & Lourdes Trujillo, 2003. "Price caps, efficiency pay-offs and infrastructure contract renegotiation in Latin America," ULB Institutional Repository 2013/44100, ULB -- Universite Libre de Bruxelles.
  • Handle: RePEc:ulb:ulbeco:2013/44100
    Note: Conference paper presented at: The UK model of regulation: a retrospective of the 20 years since the(April 9, 2003: London, UK)
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    References listed on IDEAS

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    1. Rossi, Martin A., 2001. "Technical change and efficiency measures: the post-privatisation in the gas distribution sector in Argentina," Energy Economics, Elsevier, vol. 23(3), pages 295-304, May.
    2. M. Resende & L. O. Facanha, 2002. "Privatization and efficiency in Brazilian telecommunications: an empirical study," Applied Economics Letters, Taylor & Francis Journals, vol. 9(12), pages 823-826.
    3. Eduardo Engel & Ronald Fischer & Alexander Galetovic, 1999. "The Chilean Infrastructure Concessions Program: Evaluation, Lessons and Prospects for the Future," Documentos de Trabajo 60, Centro de Economía Aplicada, Universidad de Chile.
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