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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 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.

Suggested Citation

  • Auriol, Emmanuelle & Picard, Pierre M., 2011. "A Theory of BOT Concession Contracts," IDEI Working Papers 667, Institut d'Économie Industrielle (IDEI), Toulouse.
    • Handle: RePEc:ide:wpaper:24303
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    More about this item

    Keywords

    Public-private-partnership; privatization; adverse selection; regulation; natural monopoly; infrastructure; facilities;
    All these keywords.

    JEL classification:

    • L43 - Industrial Organization - - Antitrust Issues and Policies - - - Legal Monopolies and Regulation or Deregulation
    • L51 - Industrial Organization - - Regulation and Industrial Policy - - - Economics of Regulation
    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness
    • L33 - Industrial Organization - - Nonprofit Organizations and Public Enterprise - - - Comparison of Public and Private Enterprise and Nonprofit Institutions; Privatization; Contracting Out

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