Renegotiating incomplete contracts: over and under-investment in public infrastructure franchising

• Autores: Eduardo Saavedra
• Localización: Revista de análisis económico, ISSN-e 0718-8870, ISSN 0716-5927, Vol. 13, Nº 1 (Editores Invitados: Héctor Chade y Eduardo Engel), 1998, págs. 149-180
• Idioma: inglés
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• Resumen

  • This paper characterizes the equilibria of infrastructure franchising under incomplete contracting and ex¿post renegotiation. The parties (government and a firm) are unable to credibly commit to the contracted investment plan, so that a second step investment (labeled as investments in service quality) is renegotiated by the parties in the revision stage. As expected, the possibility of renegotiation affects initial non-verifiable investments. The main conclusion of this paper is that not only under-investment but also over-investment in infrastructure may arise in equilibrium, compared to the complete contracting level.