Publication: Renegotiation of Concession Contracts in Latin America
Loading...
Published
2003-04
ISSN
Date
2014-05-09
Author(s)
Editor(s)
Abstract
The authors construct a regulation model in which renegotiation occurs due to the imperfect enforcement of concession contracts. This enables the authors to provide theoretical predictions for the impact on the probability of renegotiation of a concession, regulatory institutions, institutional features, economic shocks, and the characteristics of the concession contracts. Then they use a data set of nearly 1,000 concessions awarded in Latin America and the Caribbean countries from 1989 to 2000 covering the sectors of telecommunications, energy, transport, and water to test these predictions. Finally, the authors derive some policy implications of their theoretical and empirical work.
Link to Data Set
Citation
“Laffont, Jean-Jacques; Guasch, J. Luis; Straub, Stephane. 2003. Renegotiation of Concession Contracts in Latin America. Policy Research Working Paper;No. 3011. © http://hdl.handle.net/10986/18224 License: CC BY 3.0 IGO.”
Digital Object Identifier
Associated URLs
Associated content
Other publications in this report series
Publication The Economic Value of Weather Forecasts: A Quantitative Systematic Literature Review(Washington, DC: World Bank, 2025-09-10)This study systematically reviews the literature that quantifies the economic benefits of weather observations and forecasts in four weather-dependent economic sectors: agriculture, energy, transport, and disaster-risk management. The review covers 175 peer-reviewed journal articles and 15 policy reports. Findings show that the literature is concentrated in high-income countries and most studies use theoretical models, followed by observational and then experimental research designs. Forecast horizons studied, meteorological variables and services, and monetization techniques vary markedly by sector. Estimated benefits even within specific subsectors span several orders of magnitude and broad uncertainty ranges. An econometric meta-analysis suggests that theoretical studies and studies in richer countries tend to report significantly larger values. Barriers that hinder value realization are identified on both the provider and user sides, with inadequate relevance, weak dissemination, and limited ability to act recurring across sectors. Policy reports rely heavily on back-of-the-envelope or recursive benefit-transfer estimates, rather than on the methods and results of the peer-reviewed literature, revealing a science-to-policy gap. These findings suggest substantial socioeconomic potential of hydrometeorological services around the world, but also knowledge gaps that require more valuation studies focusing on low- and middle-income countries, addressing provider- and user-side barriers and employing rigorous empirical valuation methods to complement and validate theoretical models.Publication Direct and Indirect Impacts of Transport Mobility on Access to Jobs: Evidence from South Africa(Washington, DC: World Bank, 2025-11-12)Access to jobs is essential for economic growth. In Africa, unemployment rates are notably high. This paper reexamines the relationship between transport mobility and labor market outcomes, with a particular focus on the direct and indirect effects of transport connectivity. As predicted by theory, wages are influenced by the level of commuting deterrence. Generally, higher earnings are associated with longer commute times and/or higher commuting costs. Local accessibility is also important, especially for individuals with time constraints. Both direct and indirect impacts are found to be significant in South Africa, where job accessibility has been challenging since the end of apartheid. For the direct impact, the wage elasticity associated with commuting costs is significant. Returns on commute are particularly high for women. Local accessibility to socioeconomic facilities, such as shops and health services, is also found to have a significant impact, consistent with the concept of mobility of care. To enhance employment, therefore, it is crucial to connect people not only to job locations but also to various socioeconomic points of interest, such as markets and hospitals, in an integrated manner. This integration will enable individuals to spend more time working and commuting longer distances.Publication The Macroeconomic Implications of Climate Change Impacts and Adaptation Options(Washington, DC: World Bank, 2025-05-29)Estimating the macroeconomic implications of climate change impacts and adaptation options is a topic of intense research. This paper presents a framework in the World Bank's macrostructural model to assess climate-related damages. This approach has been used in many Country Climate and Development Reports, a World Bank diagnostic that identifies priorities to ensure continued development in spite of climate change and climate policy objectives. The methodology captures a set of impact channels through which climate change affects the economy by (1) connecting a set of biophysical models to the macroeconomic model and (2) exploring a set of development and climate scenarios. The paper summarizes the results for five countries, highlighting the sources and magnitudes of their vulnerability --- with estimated gross domestic product losses in 2050 exceeding 10 percent of gross domestic product in some countries and scenarios, although only a small set of impact channels is included. The paper also presents estimates of the macroeconomic gains from sector-level adaptation interventions, considering their upfront costs and avoided climate impacts and finding significant net gross domestic product gains from adaptation opportunities identified in the Country Climate and Development Reports. Finally, the paper discusses the limits of current modeling approaches, and their complementarity with empirical approaches based on historical data series. The integrated modeling approach proposed in this paper can inform policymakers as they make proactive decisions on climate change adaptation and resilience.Publication From Policy to Practice: Lessons from the Implementation of the Refugee Work Rights Policy in Ethiopia(Washington, DC: World Bank, 2025-11-10)This paper examines the early implementation of Ethiopia’s refugee work rights policy, with a focus on the issuance of permits that enable refugees to engage in economic activities. Building on significant legal and institutional advances under the 2019 Refugee Proclamation and subsequent directives, the analysis explores how these reforms are being operationalized in practice. Using a mixed-methods approach, combining document review, administrative data analysis, and semi-structured interviews, the paper identifies both progress and remaining challenges. Permit issuance has increased since the adoption of detailed operational guidance in 2024, reflecting the Government of Ethiopia’s commitment to operationalizing its progressive legal framework and ensuring that refugees can exercise their right to work. However, take-up remains modest, with about 5.2 percent of the working-age population holding a permit. Preliminary evidence suggests that coordination gaps, limited subnational capacity, low awareness among refugees and employers, and disincentives to formalize in a largely informal labor market are contributing to the low take-up. The paper offers policy suggestions, grounded in the Ethiopian context and emerging evidence, to help translate legal commitments into improved labor market outcomes for refugees.Publication Monitoring Global Aid Flows: A Novel Approach Using Large Language Models(Washington, DC: World Bank, 2025-11-04)Effective monitoring of development aid is the foundation for assessing the alignment of flows with their intended development objectives. Existing reporting systems, such as the Organisation for Economic Co-operation and Development’s Creditor Reporting System, provide standardized classification of aid activities but have limitations when it comes to capturing new areas like climate change, digitalization, and other cross-cutting themes. This paper proposes a bottom-up, unsupervised machine learning framework that leverages textual descriptions of aid projects to generate highly granular activity clusters. Using the 2021 Creditor Reporting System data set of nearly 400,000 records, the model produces 841 clusters, which are then grouped into 80 subsectors. These clusters reveal 36 emerging aid areas not tracked in the current Creditor Reporting System taxonomy, allow unpacking of “multi-sectoral” and “sector not specified” classifications, and enable estimation of flows to new themes, including World Bank Global Challenge Programs, International Development Association–20 Special Themes, and Cross-Cutting Issues. Validation against both Creditor Reporting System benchmarks and International Development Association commitment data demonstrates robustness. This approach illustrates how machine learning and the new advances in large language models can enhance the monitoring of global aid flows and inform future improvements in aid classification and reporting. It offers a useful tool that can support more responsive and evidence-based decision-making, helping to better align resources with evolving development priorities.
Journal
Journal Volume
Journal Issue
Collections
Related items
Showing items related by metadata.
Publication Renegotiation of Concession Contracts in Latin America(2008)High rates of contract renegotiation have raised serious questions about the viability of the concession model to attract private participation in infrastructure in developing countries. After extending in reduced form a standard regulation model, in which renegotiation occurs due to the imperfect enforcement of concession contracts, we use a unique data set of 307 concessions awarded in Latin America from 1989 to 2000, covering the sectors of transport and water, to analyze the determinants of this high incidence of renegotiations of infrastructure contracts. We look in details at 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. We then derive some policy implications of our work.Publication Do Regulation and Institutional Design Matter for Infrastructure Sector Performance?(World Bank, Washington, DC, 2007-10)This paper evaluates the impact of economic regulation on infrastructure sector outcomes. It tests the impact of regulation from three different angles: aligning costs with tariffs and firm profitability; reducing opportunistic renegotiation; and measuring the effects on productivity, quality of service, coverage, and prices. The analysis uses an extensive data set of about 1,000 infrastructure concessions granted in Latin America from the late 1980s to the early 2000s. The analysis finds that as the theory indicates, regulation matters. The empirical work here reported shows that in three relevant economic aspects-aligning costs and tariffs; dissuading renegotiations; and improving productivity, quality of service, coverage, and tariffs-the structure, institutions, and procedures of regulation matter. Thus, significant efforts should continue to be made to improve the structure, quality, and institutionality of regulation. Regulation matters for protecting both consumers and investors, for aligning closely financial returns and the costs of capital, and for capturing higher levels of benefits from the provision of infrastructure services by the private sector.Publication Regulation, Renegotiation and Capital Structure : Theory and Evidence from Latin American Transport Concessions(World Bank, Washington, DC, 2013-10)The paper examines the capital structure of regulated infrastructure firms. The authors develop a model showing that leverage, the ratio of liabilities to assets, is lower under high-powered regulation and that firms operating under high-powered regulation make proportionally larger reductions in leverage when the cost of debt increases. They test the predictions of the model using an original panel dataset of 124 transport concessions in Brazil, Chile, Colombia and Peru over 1992-2011, finding broad support for our predictions.Publication Granting and Renegotiating Infrastructure Concessions : Doing it Right(Washington, DC: World Bank, 2004-01)In most developing and industrial countries, infrastructure services have traditionally been provided by government enterprises, but in developing countries at least, these enterprises have often proven to be inefficient, unable to provide much-needed investments, and manipulated to achieve political objectives. By contrast, many studies have shown that over the past 30 years, private (or privatized) enterprises in developing countries have, on average, delivered superior performance and needed investments. Explanations differ on why this discrepancy exists. Private enterprises are driven by a desire for profits and may have more professional know-how in management, operating procedures, and use of appropriate technology. But perhaps the most important reason for their stronger performance is that privatization makes intervening in enterprise operations difficult for governments and politicians, so government manipulation is less likely. However, the issue, in general, has been how to ensure that the improved performance and efficiency gains are passed through to the users through lower tariffs and increased coverage, while allowing firms to earn a fair rate of return on their investments.Publication Multidimensionality and Renegotiation : Evidence from Transport-Sector Public-Private-Partnership Transactions in Latin America(World Bank, Washington, DC, 2008-07)Multidimensional auctions are a natural and practical solution when auctioneers pursue more than one objective in their public-private-partnership transactions. However, it is difficult to achieve auction efficiency with multiple award criteria. Using auction data from road and railway concessions in Latin America, the probability of renegotiation this paper estimates by a two-stage least squares technique with a binary selection in the first-stage regression. The findings show that auctioneers tend to adopt the multidimensional format when the need for social considerations, such as alleviation of unemployment, is high. This implies that such political considerations could hinder efficiency and transparency in auctions. The analysis also shows that the renegotiation risk in infrastructure concessions increases when multidimensional auctions are used. Rather, good governance, particularly anti-corruption policies, can mitigate the renegotiation problem.
Users also downloaded
Showing related downloaded files
Publication Breaking the Conflict Trap : Civil War and Development Policy(Washington, DC: World Bank and Oxford University Press, 2003)Most wars are now civil wars. Even though international wars attract enormous global attention, they have become infrequent and brief. Civil wars usually attract less attention, but they have become increasingly common and typically go on for years. This report argues that civil war is now an important issue for development. War retards development, but conversely, development retards war. This double causation gives rise to virtuous and vicious circles. Where development succeeds, countries become progressively safer from violent conflict, making subsequent development easier. Where development fails, countries are at high risk of becoming caught in a conflict trap in which war wrecks the economy and increases the risk of further war. The global incidence of civil war is high because the international community has done little to avert it. Inertia is rooted in two beliefs: that we can safely 'let them fight it out among themselves' and that 'nothing can be done' because civil war is driven by ancestral ethnic and religious hatreds. The purpose of this report is to challenge these beliefs.Publication Government Matters III : Governance Indicators for 1996-2002(World Bank, Washington, DC, 2003-08)The authors present estimates of six dimensions of governance covering 199 countries and territories for four time periods: 1996, 1998, 2000, and 2002. These indicators are based on several hundred individual variables measuring perceptions of governance, drawn from 25 separate data sources constructed by 18 different organizations. The authors assign these individual measures of governance to categories capturing key dimensions of governance and use an unobserved components model to construct six aggregate governance indicators in each of the four periods. They present the point estimates of the dimensions of governance as well as the margins of errors for each country for the four periods. The governance indicators reported here are an update and expansion of previous research work on indicators initiated in 1998 (Kaufmann, Kraay, and Zoido-Lobat 1999a,b and 2002). The authors also address various methodological issues, including the interpretation and use of the data given the estimated margins of errors.Publication Design Thinking for Social Innovation(2010-07)Designers have traditionally focused on enchancing the look and functionality of products.Publication Governance Matters IV : Governance Indicators for 1996-2004(World Bank, Washington, DC, 2005-06)The authors present the latest update of their aggregate governance indicators, together with new analysis of several issues related to the use of these measures. The governance indicators measure the following six dimensions of governance: (1) voice and accountability; (2) political instability and violence; (3) government effectiveness; (4) regulatory quality; (5) rule of law, and (6) control of corruption. They cover 209 countries and territories for 1996, 1998, 2000, 2002, and 2004. They are based on several hundred individual variables measuring perceptions of governance, drawn from 37 separate data sources constructed by 31 organizations. The authors present estimates of the six dimensions of governance for each period, as well as margins of error capturing the range of likely values for each country. These margins of error are not unique to perceptions-based measures of governance, but are an important feature of all efforts to measure governance, including objective indicators. In fact, the authors give examples of how individual objective measures provide an incomplete picture of even the quite particular dimensions of governance that they are intended to measure. The authors also analyze in detail changes over time in their estimates of governance; provide a framework for assessing the statistical significance of changes in governance; and suggest a simple rule of thumb for identifying statistically significant changes in country governance over time. The ability to identify significant changes in governance over time is much higher for aggregate indicators than for any individual indicator. While the authors find that the quality of governance in a number of countries has changed significantly (in both directions), they also provide evidence suggesting that there are no trends, for better or worse, in global averages of governance. Finally, they interpret the strong observed correlation between income and governance, and argue against recent efforts to apply a discount to governance performance in low-income countries.Publication Governance Matters VIII : Aggregate and Individual Governance Indicators 1996–2008(2009-06-01)This paper reports on the 2009 update of the Worldwide Governance Indicators (WGI) research project, covering 212 countries and territories and measuring six dimensions of governance between 1996 and 2008: Voice and Accountability, Political Stability and Absence of Violence/Terrorism, Government Effectiveness, Regulatory Quality, Rule of Law, and Control of Corruption. These aggregate indicators are based on hundreds of specific and disaggregated individual variables measuring various dimensions of governance, taken from 35 data sources provided by 33 different organizations. The data reflect the views on governance of public sector, private sector and NGO experts, as well as thousands of citizen and firm survey respondents worldwide. The authors also explicitly report the margins of error accompanying each country estimate. These reflect the inherent difficulties in measuring governance using any kind of data. They find that even after taking margins of error into account, the WGI permit meaningful cross-country comparisons as well as monitoring progress over time. The aggregate indicators, together with the disaggregated underlying indicators, are available at www.govindicators.org.