Concession Contract Renegotiations : Some Efficiency versus Equity Dilemmas
The authors analyze the possibility of tradeoffs between efficiency and equity as well as the possibility of distributional conflicts in the context of renegotiation of infrastructure contracts in developing countries. To do so, they present a model in which contracts are awarded by auctioning the right to operate an infrastructure service to a private monopoly, and consider the possibility of renegotiation. To identify the potential sources of tradeoffs, they track the possible outcomes of different renegotiation strategies for the monopoly running the concession and for the two groups of consumers-rich and poor-who alternate in power according to a majority voting rule. Among the model's most important policy implications is this: if having firm-driven renegotiations is a major concern, efficiency should not be the only consideration in selecting an operator. Indeed, consumers may want to award the concession to a less efficient firm if that would reduce the probability of renegotiation, since a lower probability of firm-driven renegotiations (due to demand shocks, for example) is associated with higher welfare for all service users.
| Main Authors: | , |
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| Language: | English en_US |
| Published: |
World Bank, Washington, DC
2001-11
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| Subjects: | AUCTIONS, BID, BIDDERS, BIDDING, COLLUSION, COMPETITIVE MARKETS, CONSUMERS, DEMAND ELASTICITY, ELASTICITY, EQUILIBRIUM, INCREASING RETURNS, INCREASING RETURNS TO SCALE, MARGINAL COST, MARGINAL COST OF PRODUCTION, MARGINAL COSTS, MARKET CONDITIONS, MONOPOLY, NASH EQUILIBRIUM, OPTIMIZATION, PRICE CHANGES, PRICE DECREASES, PRICE INCREASES, PRIVATE INFORMATION, PRODUCTION TECHNOLOGY, SURPLUS, TOTAL COSTS, TRADEOFFS, TURNOVER, UTILITY FUNCTION, UTILITY MAXIMIZATION, CONCESSIONS, CONTRACT NEGOTIATION, PROCUREMENT, EFFICIENCY, EQUITY, SERVICE DELIVERY, |
| Online Access: | http://documents.worldbank.org/curated/en/2001/11/1631784/concession-contract-renegotiations-some-efficiency-versus-equity-dilemmas https://hdl.handle.net/10986/19495 |
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| Summary: | The authors analyze the possibility of
tradeoffs between efficiency and equity as well as the
possibility of distributional conflicts in the context of
renegotiation of infrastructure contracts in developing
countries. To do so, they present a model in which contracts
are awarded by auctioning the right to operate an
infrastructure service to a private monopoly, and consider
the possibility of renegotiation. To identify the potential
sources of tradeoffs, they track the possible outcomes of
different renegotiation strategies for the monopoly running
the concession and for the two groups of consumers-rich and
poor-who alternate in power according to a majority voting
rule. Among the model's most important policy implications is
this: if having firm-driven renegotiations is a major
concern, efficiency should not be the only consideration in
selecting an operator. Indeed, consumers may want to award
the concession to a less efficient firm if that would reduce
the probability of renegotiation, since a lower probability
of firm-driven renegotiations (due to demand shocks, for
example) is associated with higher welfare for all service users. |
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