Athias, Laure and Saussier, Stéphane (2007): Contractual flexibility or rigidity for public private partnerships? Theory and evidence from infrastructure concession contracts.
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In this article, we explore the contractual design of toll infrastructure concession contracts. We highlight the fact that the contracting parties try to sign not only complete rigid contracts in order to avoid renegotiations but also flexible contracts in order to adapt contractual framework to unanticipated contingencies and to create incentives for cooperative behavior. This gives rise to multiple toll adjustment provisions and to a tradeoff between rigid and flexible contracts. Such tradeoff is formalized with an incomplete contract framework, including ex post maladaptation and renegotiation costs. Our model highlights the fact that trade-offs are complex and do not correspond to previous propositions coming from a transaction cost framework. More precisely, those previous works argue that a rigid contract is to be preferred as soon as specific assets are high. We highlight the fact that this proposition may be true, but only if other conditions concerning maladaptation costs, renegotiation costs and the probability to see the contract enforced are met. Furthermore, our results stress the fact that the institutional environment in which the contract is embedded matters. Propositions are tested using an original database of 71 concession contracts. Our results suggest an important role for economic efficiency concerns, as well as politics, in designing toll road concession contracts. In this perspective, our work complements other empirical studies on contractual price provisions (Masten-Crocker 1991, Crocker-Reynolds 1993, Bajari-Tadelis 2001, Bajari & al 2006), by considering the case of public-private contracting, as well as other studies on public-private partnerships, by focusing on toll adjustment provisions and documenting the effect of reputation and political ideology.
|Item Type:||MPRA Paper|
|Original Title:||Contractual flexibility or rigidity for public private partnerships? Theory and evidence from infrastructure concession contracts|
|Keywords:||Contractual design; Incomplete contract theory; Transaction cost theory; price provisions; Public private partnerships|
|Subjects:||H - Public Economics > H5 - National Government Expenditures and Related Policies > H54 - Infrastructures; Other Public Investment and Capital Stock
D - Microeconomics > D2 - Production and Organizations > D23 - Organizational Behavior; Transaction Costs; Property Rights
L - Industrial Organization > L1 - Market Structure, Firm Strategy, and Market Performance > L14 - Transactional Relationships; Contracts and Reputation; Networks
H - Public Economics > H1 - Structure and Scope of Government > H11 - Structure, Scope, and Performance of Government
L - Industrial Organization > L9 - Industry Studies: Transportation and Utilities > L90 - General
D - Microeconomics > D8 - Information, Knowledge, and Uncertainty > D82 - Asymmetric and Private Information; Mechanism Design
L - Industrial Organization > L2 - Firm Objectives, Organization, and Behavior > L24 - Contracting Out; Joint Ventures; Technology Licensing
|Depositing User:||Laure Athias|
|Date Deposited:||18. Sep 2008 09:52|
|Last Modified:||12. Feb 2013 17:38|
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