O artigo “The Paradox of Concessions in developing countries”, coautorado por Maurício Bugarin e Frederico Ribeiro, acaba de ser publicado no volume 41, número 1 da Revista Brazilian Review of Econometrics.
The paper “The Paradox of Concessions in developing countries”, coauthored by Maurício Bugarin and Frederico Ribeiro has been published (in English) in the Brazilian Review of Econometrics.
This paper presents a game-theoretic analysis of concessions that explicitly considers both the concession auction and the subsequent operation game. The concession contract requires investment to be made, but the concessionaire may benefit from underinvesting and ex-post renegotiating with the regulator. The paper highlights the “Paradox of Concession”: the more successful the auction, the higher the probability of underinvestment. We propose a new mechanism based on investment benefits rather than underinvestment punishment. The new mechanism: (i) is efficient; (ii) increases auction bids; (iii) eliminates the “paradox of concessions”; (iv) and can be fine-tuned to reduce the likelihood of underinvestment.
Keywords: Game theory, mechanism design, airport concession, privatization in Latin America.