Renegotiation Without Holdup: Anticipating Spending and Infrastructure Concessions

Eduardo M.R.A. Engel (), Ronald David Fischer and Alexander Galetovic

No 12399, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: Infrastructure concessions are frequently renegotiated after investments are sunk, resulting in better contractual terms for the franchise holders. This paper offers a political economy explanation for renegotiations that occur with no apparent holdup. We argue that they are used by political incumbents to anticipate infrastructure spending and thereby increase the probability of winning an upcoming election. Contract renegotiations allow administrations to replicate the effects of issuing debt. Yet debt issues are incorporated in the budget, must be approved by Congress and are therefore subject to the opposition%u2019s review. By contrast, under current accounting standards the obligations created by renegotiations circumvent the budgetary process in most countries. Hence, renegotiations allow incumbents to spend more without being subject to Congressional oversight.

JEL-codes: H21 L51 L91 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-pbe and nep-pol
Date: 2006-07
Note: IO
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Working Paper: Renegotiation Without Holdup: Anticipating Spending and Infrastructure Concessions (2006)
Working Paper: Renegotiation without Holdup: Anticipating Spending and Infrastructure Concessions (2006)
Working Paper: Renegotiation without Holdup: Anticipating Spending and Infrastructure Concessions (2006)
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