Review of Industrial Organization (2006) 29:55–73 © Springer 2006
Renegotiation of Concession Contracts:
A Theoretical Approach
J. LUIS GUASCH
, JEAN-JACQUES LAFFONT
World Bank and University of California, San Diego, CA USA
University of Toulouse (IDEI, GREMAQ, ARQADE), Place Anatole France,
31042 Toulouse Cedex, France
University of Southern California, Los Angles, CA, USA
University of Edinburgh, Edinburgh, UK
Abstract. We construct a regulation model in which renegotiation occurs due to the
imperfect enforcement of concession contracts. This enables us to provide theoretical pre-
dictions for the impact, on the probability of renegotiation of a concession, of regulatory
policy, institutional features, economic shocks and of several characteristics of the conces-
sion contracts themselves.
Key words: Renegotiation, Concession contracts, Regulation.
JEL Classiﬁcations: D7, L5, O54.
Since the late 80s, there has been a huge increase in private participation in
infrastructure, with Latin America leading the way.
In many cases, private
sector involvement has taken the form of concession contracts, under the
term of which the concessionaire is responsible for the investment in build-
ing or upgrading the necessary infrastructure, and for operating the service,
in exchange for users’ fee.
According to the World Bank private participa-
tion in infrastructure database, between 1990 and 2000, 65% of the projects
in Latin America and the Caribbean were adjudicated as concessions.
Corresponding author: St
ephane Straub, School of Economics, University of Edin-
burgh William Robertson Building, 50 George Square, Edinburgh EH8 9JY, UK,
See for example Harris (2003) and other papers in this issue of the Review of Indus-
See Guasch (2004) for a detailed presentation and discussion of the concession model
and its application in Latin America and the Caribbean.
It was 3% for telecommunications, 54% for energy, 89% for water and sanitation, and
98% for transportation.