Concession Contract Renegotiations: Some Efficiency Versus Equity Dilemmas
World Bank, World Bank Institute, Governance, Regulation, and Finance Division, 2001 - Concessions - 30 pages
If having firm-driven renegotiations of contracts for infrastructure services is a major concern, efficiency should not be the only consideration in selecting an operator, indeed, consumers may want to award the concession to a less efficient firm if that would reduce the probability of renegotiation.
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ask for renegotiations assume auction stage ceteris paribus comparative static concession contract contract incompleteness Contract Renegotiations cumulative distribution function demand shocks distribution function distributional conflict efficiency and equity efficiency-equity trade-off ex ante unknown ex post expected welfare firm has negative firm has positive firm's bargaining power firm's profits FOC2 fourth effect group of rich groups of consumers higher Incomplete Contracts less efficient firm majority in period marginal cost monopoly price Nash bargaining game Nash equilibrium negative profits odds of renegotiation order condition Policy Research poor consumers poor majority positive profits possibility of renegotiation probability density function probability of renegotiation profits are negative Ramsey price renegotiated price renegotiation can happen renegotiation decreases renegotiation driven renegotiation happens renegotiation occurs renegotiation stage Research Working Paper return to scale rich and poor rich consumers rich majority second period symmetric equilibrium tariff trigger renegotiation winning firm winning the auction World Bank