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A Theory of BOT Concession Contracts

Author

Listed:
  • Auriol, Emmanuelle
  • picard, pierre
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, 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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    More about this item

    Keywords

    Adverse selection; Infrastructure; Natural monopoly; Privatization; Public-private-partnership; Regulation;
    All these keywords.

    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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