Default and Renegotiation in Public-Private Partnership Auctions

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1、DEFAULTANDRENEGOTIATIONINPUBLIC-PRIVATEPARTNERSHIPAUCTIONSFLAVIOMENEZES´TheUniversityofQueenslandMATTHEWRYANTheUniversityofAucklandAbstractThewinnersofauctionsforpubic-privatepartnershipcon-tracts,especiallyformajorinfrastructureprojectssuchashighways,

2、oftenenterfinancialdistress,requiringthecon-cessiontobereallocatedorrenegotiated.Webuildasim-plemodeltoidentifythecausesandconsequencesofsuchproblems.Inthemodel,firmsbidtollchargesforafixed-termhighwayconcession,withthelowestbidwinningtheauction.Thewinner

3、buildsandoperatesthehighwayforthefixedconcessionperiod.Eachbidderhasaprivatelyknownconstructioncostandthereiscommonuncertaintyregardingthelevelofdemandthatwillresultforthecom-pletedhighway.Becauseitiscostlyforthegovernmenttoreassigntheconcession,itisexp

4、osedtoaholdupproblem,whichbidderscanexploitthroughthestrategicuseofdebt.Eachfirmchoosesitsfinancialstructuretoprovideopti-malinsuranceagainstdownsidedemandrisk:thecrediblethreatofdefaultisusedtoextortanadditionaltransferpay-mentfromthegovernment.Wederive

5、theoptimalfinancialstructureandequilibriumbiddingbehaviorandshowthatFlavioMenezes,SchoolofEconomics,TheUniversityofQueensland,StLucia,QLD´4072,Australia(f.menezes@uq.edu.au).MatthewRyan,DepartmentofEconomics,AucklandUniversityofTechnology,PrivateBag9200

6、6,Auckland1142,NewZealand(matthew.ryan@aut.ac.nz).WethankDavidMartimortandtwoanonymousrefereesfortheircarefulreadingofthepaperandfortheirmanyusefulsuggestions.Thepresentversionismuchimprovedasaresult.WehavealsobenefitedfromthecommentsofJunXiaoandpartici

7、pantsatthefollowingconferences:APETWorkshoponPPPs(Brisbane),31stAustralasianEco-nomicTheoryWorkshop(UniversityofQueensland),12thSAETConference(UniversityofQueensland),andtheVUWMicroeconomicsWorkshop(Wellington).ReceivedNovember28,2013;AcceptedJune23,20

8、13.C2014WileyPeriodicals,Inc.JournalofPublicEconomicTheory,17(1),2015,pp.49–77.4950JournalofPublicEconomicTheory(i)theauctionremainsefficient,but(ii)bidsarelowerthantheywouldbeifallbidderswerecash-financed,and(iii)themoreefficientthewinni