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A model of public and private partnership through concession contracts

Author

Listed:
  • Pasquale L. Scandizzo

    (University of Rome Tor Vergata)

  • Marco Ventura

    (ISAE - Institute for Studies and Economic Analyses)

Abstract

In this paper, we investigate the economics of concession under dynamic uncertainty using real option theory. We analyze the properties of concession as an instrument to privatize investment and management of public resources. In this context, we explore, in particular, three issues: (1) the conditions under which the contract is acceptable to both a public and a private party, (2) the conditions under which it is efficient, i.e. it is preferable to direct development and operation by the public sector, and (3) two different possible equilibrium solutions. Finally, we apply the theoretical results obtained to the case of a major public highway concessionaire in Italy.

Suggested Citation

  • Pasquale L. Scandizzo & Marco Ventura, 2008. "A model of public and private partnership through concession contracts," ISAE Working Papers 104, ISTAT - Italian National Institute of Statistics - (Rome, ITALY).
    • Handle: RePEc:isa:wpaper:104
    as

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    References listed on IDEAS

    as
    1. Urs Meister, 2004. "Franchise Bidding in the Water Industry- Auction Schemes and Investment Incentives," Working Papers 0033, University of Zurich, Institute for Strategy and Business Economics (ISU).
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    3. Paul Klemperer, 2002. "What Really Matters in Auction Design," Journal of Economic Perspectives, American Economic Association, vol. 16(1), pages 169-189, Winter.
    4. Michele Moretto & Chiara D.Alpaos & Cesare Dosi, 2005. "Concession Length and Investment Timing Flexibility," Working Papers 2005.32, Fondazione Eni Enrico Mattei.
    5. Octavio A. F. Tourinho., 1979. "The Option Value of Reserves of Natural Resources," Research Program in Finance Working Papers 94, University of California at Berkeley.
    6. Ken Binmore & Paul Klemperer, 2002. "The Biggest Auction Ever: the Sale of the British 3G Telecom Licences," Economic Journal, Royal Economic Society, vol. 112(478), pages 74-96, March.
    7. Klemperer, Paul, 2002. "How (not) to run auctions: The European 3G telecom auctions," European Economic Review, Elsevier, vol. 46(4-5), pages 829-845, May.
    8. Michael Klein, 1998. "Rebidding for Concessions," World Bank Publications - Reports 11524, The World Bank Group.
    9. Laffont, Jean-Jacques & Tirole, Jean, 1987. "Auctioning Incentive Contracts," Journal of Political Economy, University of Chicago Press, vol. 95(5), pages 921-937, October.
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    More about this item

    Keywords

    concession contract; real option; license; Autostrade per l’Italia; private and public partnership;
    All these keywords.

    JEL classification:

    • D45 - Microeconomics - - Market Structure, Pricing, and Design - - - Rationing; Licensing
    • H44 - Public Economics - - Publicly Provided Goods - - - Publicly Provided Goods: Mixed Markets
    • H54 - Public Economics - - National Government Expenditures and Related Policies - - - Infrastructures

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