Concessions of infrastructure in Latin America: Government-led renegotiation
Article first published online: 21 DEC 2007
Copyright © 2007 John Wiley & Sons, Ltd.
Journal of Applied Econometrics
Special Issue: The Econometrics of Industrial Organization
Volume 22, Issue 7, pages 1267–1294, December 2007
How to Cite
Guasch, J. L., Laffont, J.-J. and Straub, S. (2007), Concessions of infrastructure in Latin America: Government-led renegotiation. J. Appl. Econ., 22: 1267–1294. doi: 10.1002/jae.987
- Issue published online: 21 DEC 2007
- Article first published online: 21 DEC 2007
- Manuscript Revised: 4 JUL 2006
- Manuscript Received: 13 MAY 2005
This paper analyzes government-led renegotiations in infrastructure concession contracts in Latin America, based on the same sample used in Guasch, Laffont and Straub (2003) to examine firm-led renegotiations. After extending the theoretical framework to a multiple-period context in which both Pareto-improving and rent-shifting renegotiations at the initiative of the government can occur, we develop an original instrumental variable strategy to address the issue of contract endogeneity and derive empirical results. While some of the main insights concerning the importance of having a regulator in place when awarding concessions and the fragility of price cap regulatory schemes are unchanged, significant differences arise with respect to the effect of investment and financing, as well as the corruption variables. We provide evidence that a good regulatory framework is especially important in contexts with weak governance and political opportunism. Copyright © 2007 John Wiley & Sons, Ltd.