Highway Franchising: Pitfalls and Opportunities

Eduardo Engel, Ronald Fischer () and Alexander Galetovic ()

No 15, Documentos de Trabajo from Centro de Economía Aplicada, Universidad de Chile

Abstract: We build a conceptual framework to analyze the virtues and limitations of alternative mechanisms that can be used to auction a highway. We argue that current mechanisms, which fix the term of the franchise, create unnecesary risk and facilitate post-contract opportunism by the regulator and the franchise-holder. We propose a new mechanism that allocates the franchise to the firm asking the least present value of toll revenue. We argue that this mechanisms is clearly superior to those currently in use.

Date: 1997
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Persistent link: https://EconPapers.repec.org/RePEc:edj:ceauch:15

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