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Optimal concession of water services under common value

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Concession_2006_01_09.pdf (172.9Kb)
Date
2006
Dewey
Microéconomie
Sujet
Water distribution; Common value auction; concession and incentive contract
JEL code
D44; D82; L51
Conference name
European Economic Association & Econometric Society
Conference date
08-2006
Conference city
Vienne
Conference country
Autriche
URI
https://basepub.dauphine.fr/handle/123456789/4073
Collections
  • LEDa : Publications
Metadata
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Author
Salanié, François
Bontems, Philippe
Aubert, Cécile
Type
Communication / Conférence
Item number of pages
21
Abstract (EN)
When an incumbent firm is in charge of a distribution network, it accumulates information on the state of the network. This `common value' information creates a winner's curse during auctions for renewing the concession. The municipality contracting out the provision of the service trades off the incumbent's incentives to invest, with lower costs when changing supplier, and must induce effective competition despite the winner's curse. We show that the optimal concession contract can be designed to address this difficulty, with asymmetric auctions in which the incumbent is favored and increasing output schedules. Contrary to standard auctions, the winner's curse can be prevented at no expected cost.

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