The Paradox of Concessions in Developing Countries

Mauricio Soares Bugarin and Frederico Ribeiro

Brazilian Review of Econometrics, 2022, vol. 41, issue 1

Abstract: This paper presents a game-theoretic analysis of concessions that explicitly considers both the concession auction and the subsequent operation game. The concession contract requires investment to be made, but the concessionaire may benefit from underinvesting and ex-post renegotiating with the regulator. The paper highlights the “Paradox of Concession”: the more successful the auction is, the higher is the probability of underinvestment. We propose a new mechanism, based on benefits for investment rather than punishment for underinvestment. The new mechanism: (i) is efficient; (ii) increases auction bids; (iii) eliminates the “paradox of concessions”; (iv) and can be fine-tuned to reduce the likelihood of underinvestment.

Date: 2022
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
https://periodicos.fgv.br/bre/article/view/83397 (text/html)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:sbe:breart:v:41:y:2022:i:1:a:83397

Access Statistics for this article

Brazilian Review of Econometrics is currently edited by Daniel Monte

More articles in Brazilian Review of Econometrics from Sociedade Brasileira de Econometria - SBE Contact information at EDIRC.
Bibliographic data for series maintained by Núcleo de Computação da FGV EPGE ().