Auctions for Infrastructure Concessions with Demand Uncertainty and Unknown Costs
Gustavo Nombela () and
Ginés de Rus ()
MPRA Paper from University Library of Munich, Germany
Auction mechanisms commonly used in practice for awarding infrastructure concession contracts induce a bias towards the selection of concessionaires who are optimistic about demand, but are not necessarily cost-efficient. This helps to explain the frequent renegotiation of concessions observed in practice. This paper shows that the fixed-term nature of contracts is the key element for selection errors, and it proposes a better alternative mechanism based on flexible-term contracts. This new auction mechanism reduces the probability of selection errors and contract renegotiation, and it is simple enough to constitute a good option for concessions in sectors like transport and public utilities.
Keywords: concessions; auctions; renegotiation; infrastructure (search for similar items in EconPapers)
JEL-codes: D44 L91 (search for similar items in EconPapers)
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Persistent link: https://EconPapers.repec.org/RePEc:pra:mprapa:12023
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