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Regulatory Trade-offs in Designing Concession Contracts for Infrastructure Networks

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  • Antonio Estache
  • C. Crampes

Abstract

Network activities typically involve collecting a good or service (such as electric utilities, phone services, and rail transportation) from many producers or distributing them to many users. Producers and users are often widely scattered, geographically. Close financial integration of networks is justified on the basis of economies of scope and scale and the benefits from pooling and coordinating. In many countries, network operators are completely integrated publicly-owned firms (private firms being deemed insufficiently efficient or equitable). Challengers of this practice contend that the inefficiency resulting from lack of competition outweighs the gain from economic integration. With reform, some competitive mechanisms can be introduced even when monopoly seems the best option for delivering a service. But conflicts between policymakers'objectives -including efficiency, equity, speed, speed of reform, and signaling- influence the design of concession contracts for infrastructure network services (including communications and transportation services). Competition begins with the unbundling of various stages of delivery. Then competitive bidding is popular, with the public authority keeping property rights on productive assets but conceding their operation to a private firm. The winner gets the right to maximize profits, within limits (having to provide universal services, for example, and avoid price discrimination). In liberalizing the delivery of a service, policymakers must consider not only efficiency but also social and fiscal feasibility. The authors discuss how relevant information asymmetry is in contract design and the award and regulatory processes. They also discuss how to design pricing to accommodate the obligation to provide universal service. To illustrate, they describe Argentina's experiment in liberalization, which is increasingly viewed as a model for changing private sector and government involvement in infrastructure services. Beginning in
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Suggested Citation

  • Antonio Estache & C. Crampes, 1998. "Regulatory Trade-offs in Designing Concession Contracts for Infrastructure Networks," ULB Institutional Repository 2013/44014, ULB -- Universite Libre de Bruxelles.
  • Handle: RePEc:ulb:ulbeco:2013/44014
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    1. repec:eee:enepol:v:114:y:2018:i:c:p:566-577 is not listed on IDEAS
    2. Johnstone, Nick & Wood, Libby & Hearne, Robert R., 1999. "The Regulation of Private Sector Participation in Urban Water Supply and Sanitation: Realising Social and Environmental Objectives in Developing Countries," Discussion Papers 24142, International Institute for Environment and Development, Environmental Economics Programme.
    3. Clive Harris, 2003. "Private Participation in Infrastructure in Developing Countries : Trends, Impacts, and Policy Lessons," World Bank Publications, The World Bank, number 15124, April.
    4. Trujillo, Lourdes & Nombela, Gustavo, 1999. "Privatization and regulation of the seaport industry," Policy Research Working Paper Series 2181, The World Bank.
    5. Trujillo, Lourdes & Quinet, Emile & Estache, Antonio, 2002. "Dealing with demand forecasting games in transport privatization," Transport Policy, Elsevier, vol. 9(4), pages 325-334, October.
    6. Wang, Grace W.Y. & Pallis, Athanasios A., 2014. "Incentive approaches to overcome moral hazard in port concession agreements," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 67(C), pages 162-174.

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