Citation

Discussion Paper Details

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Full Details

Title: A Theory of BOT Concession Contracts

Author(s): Emmanuelle Auriol and Pierre M Picard

Publication Date: April 2011

Keyword(s): adverse selection, infrastructure, natural monopoly, privatization, Public-private-partnership and regulation

Programme Area(s): Industrial Organization

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.

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Bibliographic Reference

Auriol, E and Picard, P. 2011. 'A Theory of BOT Concession Contracts'. London, Centre for Economic Policy Research. https://cepr.org/active/publications/discussion_papers/dp.php?dpno=8323