Renegotiation of Concession Contracts in Latin America

J.Luis Guasch

World Bank

Jean-Jacques Laffont

University of Toulouse (IDEI, ARQADE, GREMAQ-CNRS)

St¶ephane Straub

University of Toulouse (IDEI, GREMAQ-CNRS)

October 2002

Abstract

We construct a regulation model in which renegotiation occurs due to the imperfect enforcement of concession contracts. This enables us to provide theoretical predictions for the impact, on the probability of renegotiation of a concession, of regulatory institutions, institutional features, economic shocks and of the characteristics of the concession contracts themselves.

Then we use a data set of nearly 1000 concessions awarded in Latin America and the Caribbean countries from 1989 to 2000, covering the sectors of telecommu-

nications, energy, transport and water, to test these predictions.

Finally, we derive some policy implications of our theoretical and empirical work.

JEL Codes: D7, L5, O54

Keywords: Renegotiation, Concession contracts, Regulation, LDCs.