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A Theory of BOT Concession Contracts

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  • Auriol, Emmanuelle
  • Picard, Pierre M

Abstract

In this paper, we discuss the choice for build-operate-and-transfer (BOT) concessions when governments and managers do not share the same information regarding the operation characteristics of a facility. We show that larger shadow costs of public funds and larger information asymmetries entice governments to choose BOT concessions. This result stems from a trade-off between the government's shadow costs of financing the construction and the operation of the facility and the excessive usage price that the consumers may face during the concession period. The incentives to choose BOT concessions increase as a function of ex-ante informational asymmetries between governments and potential BOT concession holders and with the possibility of transferring the concession cost characteristics to public firms at the termination of the concession.

Suggested Citation

  • Auriol, Emmanuelle & Picard, Pierre M, 2011. "A Theory of BOT Concession Contracts," CEPR Discussion Papers 8323, C.E.P.R. Discussion Papers.
  • Handle: RePEc:cpr:ceprdp:8323
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    References listed on IDEAS

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    Citations

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    Cited by:

    1. Buso, Marco & Marty, Frederic & Tran, Phuong Tra, 2017. "Public-private partnerships from budget constraints: Looking for debt hiding?," International Journal of Industrial Organization, Elsevier, vol. 51(C), pages 56-84.
    2. Yin, Yafeng & Guo, Xiaolei, 2016. "Optimal choice of capacity, toll and government guarantee for build-operate-transfer roads under asymmetric cost informationAuthor-Name: Shi, Shasha," Transportation Research Part B: Methodological, Elsevier, vol. 85(C), pages 56-69.
    3. Clifford Winston, 2013. "On the Performance of the U.S. Transportation System: Caution Ahead," Journal of Economic Literature, American Economic Association, vol. 51(3), pages 773-824, September.
    4. repec:eee:juipol:v:48:y:2017:i:c:p:195-200 is not listed on IDEAS
    5. Páez-Pérez, David & Sánchez-Silva, Mauricio, 2016. "A dynamic principal-agent framework for modeling the performance of infrastructure," European Journal of Operational Research, Elsevier, vol. 254(2), pages 576-594.
    6. repec:eee:transa:v:107:y:2018:i:c:p:106-125 is not listed on IDEAS
    7. Daniel Albalate & Germà Bel & Richard R. Geddes, 2015. "“Strong versus Weak Vertical Integration: Contractual Choice and PPPs in the United States”," IREA Working Papers 201518, University of Barcelona, Research Institute of Applied Economics, revised Sep 2015.
    8. David Martimort & Flavio Menezes & Myrna Wooders & DANIEL DANAU & ANNALISA VINELLA, 2015. "Public-Private Contracting under Limited Commitment," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 17(1), pages 78-110, February.
    9. repec:kap:revind:v:51:y:2017:i:1:d:10.1007_s11151-016-9540-1 is not listed on IDEAS
    10. Feng, Zhuo & Zhang, Shui-Bo & Gao, Ying & Zhang, Shuai-Jun, 2016. "Subsidizing and pricing private toll roads with noncontractible service quality: A relational contract approach," Transportation Research Part B: Methodological, Elsevier, vol. 91(C), pages 466-491.
    11. Gilles Edouard Espinosa & Caroline Hillairet & Benjamin Jourdain & Monique Pontier, 2013. "Reducing the debt : is it optimal to outsource an investment?," Papers 1305.4879, arXiv.org, revised Jun 2015.
    12. repec:eee:transb:v:102:y:2017:i:c:p:105-123 is not listed on IDEAS
    13. Gilles Edouard Espinosa & Caroline Hillairet & Benjamin Jourdain & Monique Pontier, 2016. "Reducing the debt : is it optimal to outsource an investment?," Post-Print hal-00824390, HAL.

    More about this item

    Keywords

    adverse selection; infrastructure; natural monopoly; privatization; Public-private-partnership; regulation;

    JEL classification:

    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • L33 - Industrial Organization - - Nonprofit Organizations and Public Enterprise - - - Comparison of Public and Private Enterprise and Nonprofit Institutions; Privatization; Contracting Out
    • L43 - Industrial Organization - - Antitrust Issues and Policies - - - Legal Monopolies and Regulation or Deregulation
    • L51 - Industrial Organization - - Regulation and Industrial Policy - - - Economics of Regulation

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