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Auctions for Infrastructure Concessions with Demand Uncertainty and Unknown Costs

Author

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  • Nombela, Gustavo
  • de Rus, Gines

Abstract

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.

Suggested Citation

  • Nombela, Gustavo & de Rus, Gines, 2001. "Auctions for Infrastructure Concessions with Demand Uncertainty and Unknown Costs," MPRA Paper 12023, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:12023
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    File URL: https://mpra.ub.uni-muenchen.de/12023/1/MPRA_paper_12023.pdf
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    References listed on IDEAS

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    More about this item

    Keywords

    concessions; auctions; renegotiation; infrastructure;
    All these keywords.

    JEL classification:

    • D44 - Microeconomics - - Market Structure, Pricing, and Design - - - Auctions
    • L91 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - Transportation: General

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