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Private information, competition and the renewal of delegation contracts: an econometric analysis of water services in France

Author

Listed:
  • Guillem Canneva

    () (UMR G-EAU - Gestion de l'Eau, Acteurs, Usages - Cirad - Centre de Coopération Internationale en Recherche Agronomique pour le Développement - Montpellier SupAgro - Centre international d'études supérieures en sciences agronomiques - AgroParisTech - CEMAGREF - Centre national du machinisme agricole, du génie rural, des eaux et forêts - IRD [France-Sud] - Institut de Recherche pour le Développement - CIHEAM-IAMM - Centre International de Hautes Etudes Agronomiques Méditerranéennes - Institut Agronomique Méditerranéen de Montpellier - CIHEAM - Centre International de Hautes Études Agronomiques Méditerranéennes)

  • Serge Garcia

    () (LEF - Laboratoire d'Economie Forestière - INRA - Institut National de la Recherche Agronomique - AgroParisTech)

Abstract

The renewal of franchise bidding for natural monopolies is often considered to be insufficiently competitive. We hypothesize that this may be due to the fact that the incumbent operator knows the existing network better than his competitors. This type of private information creates what is referred to as the "winner's curse" during renewal auctions. Since bidders anticipate it, the competition may be less fierce, leading to a less effective selection procedure. We propose a methodology that makes it possible to distinguish this type of information from the more standard private information parameter that characterizes the idiosyncratic productivity of each operator. We have built a model that simultaneously explains the choice of operator made by the local community and the degree of competition during the renewal process. This selection model makes it possible to estimate prices in a second step without a selection bias. We use an original database for the renewal of a lease contract for water utility operations in France. The results highlight the effect of common value information on the selection of an operator, combined with local concentration effects. This approach provides some perspectives for improving the effectiveness of franchise bidding procedures.

Suggested Citation

  • Guillem Canneva & Serge Garcia, 2011. "Private information, competition and the renewal of delegation contracts: an econometric analysis of water services in France," Post-Print hal-01191181, HAL.
  • Handle: RePEc:hal:journl:hal-01191181
    Note: View the original document on HAL open archive server: https://hal.archives-ouvertes.fr/hal-01191181
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