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A Theory of BOT Concession Contracts

  • Emmanuelle Auriol

    (TSE (ARQADE and IDEI), Université de Toulouse I (France))

  • Pierre M. Picard


    (CREA, University of Luxembourg (Luxembourg), and CORE, Université catholique de Louvain (Belgium).)

In this paper, we discuss the choice for build-operate-and-transfer (BOT) concessions when governments and firm 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 consumer 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.

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Paper provided by Center for Research in Economic Analysis, University of Luxembourg in its series CREA Discussion Paper Series with number 11-04.

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Date of creation: 2011
Date of revision:
Handle: RePEc:luc:wpaper:11-04
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