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The Dark and Bright Sides of Renegotiation: An Application to Transport Concession Contracts

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  • de Brux, Julie

Abstract

Renegotiations of public-private partnerships have recently been the subject of much attention. Economists regularly analyse them through the lens of 'hold up' theories. According to these models, renegotiations are a problem to be avoided: renegotiations become opportunistic because agents are self-interested, and they use renegotiation to seek rents. As a result, renegotiating destroys social surplus. Even when renegotiations occur to fill in the blanks of the contracts, and implement investments that had not been contracted ex ante, they typically predict a process by which parties use renegotiations to maximise their short run individual benefit. This paper sets out an alternative and new view. Through two case studies, we show that renegotiations may be cooperative, contrary to the conventional view. We find that when parties give an important value to their present and future bilateral relationships, they are prone to find solutions that are sustainable and profitable for both parties. Even acting according to their own self-interest, at the stage of renegotiation, parties try to maximise joint utility. In this way, they reinforce the durability of their relationship.

Suggested Citation

  • de Brux, Julie, 2010. "The Dark and Bright Sides of Renegotiation: An Application to Transport Concession Contracts," Utilities Policy, Elsevier, vol. 18(2), pages 77-85, June.
  • Handle: RePEc:eee:juipol:v:18:y:2010:i:2:p:77-85
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    References listed on IDEAS

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    Cited by:

    1. Julián Sierra Tamayo & Jose Manuel Vassallo & María de los Ángeles Baeza, 2014. "Unbundling tolls from contracts: a new road PPP model," Public Money & Management, Taylor & Francis Journals, pages 447-451.
    2. repec:eee:juipol:v:48:y:2017:i:c:p:109-121 is not listed on IDEAS
    3. Eduardo Engel & Ronald Fischer & Alexander Galetovic, 2015. "Soft Budgets and Renegotiations in Public-Private Partnerships:Theory and Evidence," Working Papers wp408, University of Chile, Department of Economics.
    4. Fischer, Ronald & Huerta, Diego & Valenzuela, Patricio, 2015. "Inequality and Private Credit," Working Papers 15-12, University of Pennsylvania, Wharton School, Weiss Center.
    5. Miranda Sarmento, J. & Renneboog, L.D.R., 2014. "Anatomy of Public-Private Partnerships : Their Creation, Financing, and Renegotiations," Discussion Paper 2014-017, Tilburg University, Center for Economic Research.
    6. Miranda Sarmento, J.J. & Renneboog, Luc, 2017. "Renegotiating Public-Private Partnerships," Discussion Paper 2017-014, Tilburg University, Center for Economic Research.

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