Working Paper: CEPR ID: DP8323
Authors: Emmanuelle Auriol; Pierre M. Picard
Abstract: In this paper, we discuss the choice for build-operate-and-transfer (BOT) concessions when governments and managers do not share the same information regarding the operation characteristics of a facility. We show that larger shadow costs of public funds and larger information asymmetries entice governments to choose BOT concessions. This result stems from a trade-off between the government's shadow costs of financing the construction and the operation of the facility and the excessive usage price that the consumers may face during the concession period. The incentives to choose BOT concessions increase as a function of ex-ante informational asymmetries between governments and potential BOT concession holders and with the possibility of transferring the concession cost characteristics to public firms at the termination of the concession.
Keywords: Adverse Selection; Infrastructure; Natural Monopoly; Privatization; Public-Private Partnership; Regulation
JEL Codes: D82; L33; L43; L51
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| larger shadow costs (O22) | preference for BOT contracts (D86) |
| greater information asymmetries (D82) | preference for BOT contracts (D86) |
| information asymmetries arise post-investment (D82) | attractiveness of BOT concessions (R42) |
| financial crises (G01) | reliance on BOT concessions (R42) |
| ex-ante information symmetry (D82) | preference for public management (D73) |
| high project uncertainty and shadow costs (O22) | preference for BOT concessions (H43) |
| better information among concession candidates (D72) | incentives for choosing BOT contracts (R42) |
| sufficient number of bidders (D44) | incentives for choosing BOT contracts (R42) |
| shadow costs of public funds (H89) | choice between BOT and public management (L33) |