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Concessions of infrastructure in Latin America: Government-led renegotiation

  • J. Luis Guasch

    (World Bank and University of California, San Diego, California, USA)

  • Jean-Jacques Laffont
  • Stéphane Straub

    (School of Economics, University of Edinburgh, Edinburgh, UK)

This paper analyzes government-led renegotiations in infrastructure concession contracts in Latin America, based on the same sample used in Guasch, Laffont and Straub (2003) to examine firm-led renegotiations. After extending the theoretical framework to a multiple-period context in which both Pareto-improving and rent-shifting renegotiations at the initiative of the government can occur, we develop an original instrumental variable strategy to address the issue of contract endogeneity and derive empirical results. While some of the main insights concerning the importance of having a regulator in place when awarding concessions and the fragility of price cap regulatory schemes are unchanged, significant differences arise with respect to the effect of investment and financing, as well as the corruption variables. We provide evidence that a good regulatory framework is especially important in contexts with weak governance and political opportunism. Copyright © 2007 John Wiley & Sons, Ltd.

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Article provided by John Wiley & Sons, Ltd. in its journal Journal of Applied Econometrics.

Volume (Year): 22 (2007)
Issue (Month): 7 ()
Pages: 1267-1294

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Handle: RePEc:jae:japmet:v:22:y:2007:i:7:p:1267-1294
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  1. Stephen Coate & Timothy Besley, 2000. "Elected versus Appointed Regulators: Theory and Evidence," NBER Working Papers 7579, National Bureau of Economic Research, Inc.
  2. Jerry R. GREEN & Jean-Jacques LAFFONT, 1992. "Renegotiation and the Form of Efficient Contracts," Annales d'Economie et de Statistique, ENSAE, issue 25-26, pages 123-150.
  3. Laffont, Jean-Jacques, 1996. "Industrial policy and politics," International Journal of Industrial Organization, Elsevier, vol. 14(1), pages 1-27.
  4. Aghion, Philippe & Dewatripont, Mathias & Rey, Patrick, 1994. "Renegotiation Design with Unverifiable Information," Scholarly Articles 12375014, Harvard University Department of Economics.
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  9. 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.
  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. Hart, Oliver D & Tirole, Jean, 1988. "Contract Renegotiation and Coasian Dynamics," Review of Economic Studies, Wiley Blackwell, vol. 55(4), pages 509-40, October.
  12. Rivers, Douglas & Vuong, Quang H., 1988. "Limited information estimators and exogeneity tests for simultaneous probit models," Journal of Econometrics, Elsevier, vol. 39(3), pages 347-366, November.
  13. J. Guasch & Jean-Jacques Laffont & Stéphane Straub, 2006. "Renegotiation of Concession Contracts: A Theoretical Approach," Review of Industrial Organization, Springer, vol. 29(1), pages 55-73, September.
  14. Eduardo Engel & Ronald Fischer & Alexander Galetovic, 2003. "Privatizing Highways in Latin America: Fixing What Went Wrong," ECONOMIA JOURNAL OF THE LATIN AMERICAN AND CARIBBEAN ECONOMIC ASSOCIATION, ECONOMIA JOURNAL OF THE LATIN AMERICAN AND CARIBBEAN ECONOMIC ASSOCIATION.
  15. Stern, Jon & Cubbin, John, 2005. "Regulatory effectiveness : the impact of regulation and regulatory governance arrangements on electricity industry outcomes," Policy Research Working Paper Series 3536, The World Bank.
  16. Cecile Aubert & Jean- Jacques Laffont, 2005. "Political renegotiation of regulatory contracts," Game Theory and Information 0506002, EconWPA.
  17. Holtz-Eakin, Douglas, 1994. "Public-Sector Capital and the Productivity Puzzle," The Review of Economics and Statistics, MIT Press, vol. 76(1), pages 12-21, February.
  18. Jean-Jacques Laffont & Jean Tirole, 1993. "A Theory of Incentives in Procurement and Regulation," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262121743, June.
  19. Steven Tadelis, 2009. "Auctions Versus Negotiations in Procurement: An Empirical Analysis," Journal of Law, Economics and Organization, Oxford University Press, vol. 25(2), pages 372-399, October.
  20. 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.
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  26. J. Luis Guasch, 2004. "Granting and Renegotiating Infrastructure Concessions : Doing it Right," World Bank Publications, The World Bank, number 15024, September.
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