Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/26978 
Year of Publication: 
2006
Series/Report no.: 
Center Discussion Paper No. 937
Publisher: 
Yale University, Economic Growth Center, New Haven, CT
Abstract: 
Infrastructure concessions are frequently renegotiated after investments are sunk, resulting in better contractual terms for the franchise holders. This paper offers a political economy explanation for renegotiations that occur with no apparent holdup. We argue that they are used by political incumbents to anticipate infrastructure spending and thereby increase the probability of winning an upcoming election. Contract renegotiations allow administrations to replicate the effects of issuing debt. Yet debt issues are incorporated in the budget, must be approved by Congress and are therefore subject to the opposition’s review. By contrast, under current accounting standards the obligations created by renegotiations circumvent the budgetary process in most countries. Hence, renegotiations allow incumbents to spend more without being subject to Congressional oversight.
Subjects: 
build-operate-and-transfer (BOT)
concessions
renegotiation
public-private partnerships
JEL: 
H21
L51
L91
Document Type: 
Working Paper

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