Flexible-term contracts for road franchising |
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| Institution: | 1. Applied Economics Department, University of Las Palmas, Campus Tafira, 35017 Las Palmas Gran Canaria, Spain;2. Institute of Transportation Studies, Univ. California, UC Transportation Center, 108 Naval Architecture, Building 1720, Berkeley CA 94720-1782, USA;1. Jiangsu Key Laboratory for Bioresources of Saline Soils, Yancheng Teachers University, Yancheng 224051, PR China;2. Jiangsu Synthetic Innovation Center for Coastal Bio-agriculture, Yancheng Teachers University, Yancheng 224051, PR China;3. Jiangsu Provincial Key Laboratory of Coastal Wetland Bioresources and Environmental Protection, Yancheng Teachers University, Yancheng 224051, PR China;4. School of Ocean and Biological Engineering, Yancheng Teachers University, Yancheng 224051, PR China;1. University of Heidelberg, Germany;2. University of Amsterdam and Tinbergen Institute, The Netherlands |
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| Abstract: | Private participation in road projects is increasing around the world. The most popular form of franchising is a concession contract, which allows a private firm to charge tolls to road users during a pre-determined period in order to recover investments. Concessionaires are usually selected through auctions at which candidates submit bids for tolls or payments to the government. This paper discusses how this mechanism does not generally yield optimal outcomes and it induces the frequent contract renegotiations observed in practice. A new franchising mechanism is proposed, based on a flexible-term contract and bi-dimensional bids for total net revenue and maintenance costs. This new mechanism improves outcomes compared to fixed-term concessions, by eliminating traffic risk and promoting the selection of efficient concessionaires. |
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