Least Present Value of Net Revenue: a new auction-mechanism for highway concessions

Ginés de Rus and Gustavo Nombela ()

MPRA Paper from University Library of Munich, Germany

Abstract: This paper presents a new mechanism for awarding tolled-highways, based on the variable-term concept proposed by Engel et al (1997). These authors claim that a mechanism based on bids for least-present-value of revenue (LPVR) eliminates the risk of demand and simplifies renegotiations. However, if maintenance and operation costs are non-negligible, it is proven that, under LPVR, bidders need to estimate future traffic to make their offers, so the risk of demand is still present. Moreover, LPVR does not guarantee the selection of the best concessionaire. An alternative mechanism (least-present-value of net revenue, LPVNR) is proposed. The idea is to use bids that do not force firms to estimate future traffic. Under LPVNR, firms must make offers on: (i) total amount of revenue, net of maintenance costs; (ii) annual operation and routine-maintenance costs; and (iii) cost of road re-pavement. The concession is awarded to the firm with the lowest total expected cost, and the selection rule is adapted to the information available. The new mechanism is simple, does not impose additional efforts from firms, and eliminates the risk of demand more effectively. Although initially conceived for the road sector, the idea of LPVNR could easily be extended to other infrastructure sectors.

Keywords: Highways; roads; concessions; auctions (search for similar items in EconPapers)
JEL-codes: D44 L91 (search for similar items in EconPapers)
Date: 2000
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

Downloads: (external link)
https://mpra.ub.uni-muenchen.de/12203/1/MPRA_paper_12203.pdf original version (application/pdf)

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:pra:mprapa:12203

Access Statistics for this paper

More papers in MPRA Paper from University Library of Munich, Germany Ludwigstraße 33, D-80539 Munich, Germany. Contact information at EDIRC.
Bibliographic data for series maintained by Joachim Winter ().