Renegotiation Without Holdup: Anticipating Spending and Infrastructure Concessions

17 Pages Posted: 3 Aug 2006 Last revised: 18 Sep 2006

See all articles by Eduardo M. R. A. Engel

Eduardo M. R. A. Engel

Yale University - Department of Economics; National Bureau of Economic Research (NBER)

Alexander Galetovic

Universidad Adolfo Ibáñez; Stanford University - The Hoover Institution on War, Revolution and Peace; University of Padua - CRIEP

Ronald D. Fischer

University of Chile - Center of Applied Economics (CEA)

Multiple version iconThere are 2 versions of this paper

Date Written: July 2006

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%u2019s 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.

Suggested Citation

Engel, Eduardo M. and Galetovic, Alexander and Fischer, Ronald D., Renegotiation Without Holdup: Anticipating Spending and Infrastructure Concessions (July 2006). NBER Working Paper No. w12399. Available at SSRN: https://ssrn.com/abstract=921565

Eduardo M. Engel (Contact Author)

Yale University - Department of Economics ( email )

28 Hillhouse Ave
New Haven, CT 06520-8268
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203-432-5595 (Phone)
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National Bureau of Economic Research (NBER)

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Cambridge, MA 02138
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Alexander Galetovic

Universidad Adolfo Ibáñez ( email )

Peñalolén
Santiago
Chile

Stanford University - The Hoover Institution on War, Revolution and Peace ( email )

Stanford, CA 94305-6010
United States

University of Padua - CRIEP ( email )

Padua
Italy

Ronald D. Fischer

University of Chile - Center of Applied Economics (CEA) ( email )

Republica 701
Casilla 2777
Santiago
Chile
+56/2/678 4055 (Phone)
+56/2/689 7895 (Fax)

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