Revisiting the Strengths and Limitations of Regulatory Contracts in Infrastructure Industries

Journal of Infrastructure Systems, Vol. 16, No. 4, pp. 334-342, December 2010

21 Pages Posted: 11 Aug 2011

See all articles by Rui Cunha Marques

Rui Cunha Marques

Technical University of Lisbon (UTL) - Centre for Management Studies (CEG-IST)

Sanford V. Berg

University of Florida - Department of Economics

Date Written: June 25, 2009

Abstract

This paper evaluates regulation by contract in public-private partnerships (PPPs) in infrastructure services. Although the benefits of competition for the market and of regulatory contracts are widely acknowledged, the literature indentifies several failures in their design. These ‘flaws’ are present in both developed and developing countries and arise in all types of contracts. This study analyses both short and long term contracts, focusing on purely contractual PPPs and institutionalized PPPs (mixed companies). The evidence suggests that for all kinds of contracts, the major problems tend to arise in the preparation of public tender documents: the ‘best’ bidder is not often the winner. The likely results include redistribution in favor of the private partner, weak incentives for high performance, and renegotiation of contracts. Moreover, risks are not allocated correctly nor is effective monitoring ensured. This review of contract procedures and design allows us to draw several implications for policy-makers and to present suggestions and recommendations for improving regulatory contracts.

Keywords: regulation by contract, bidding documents, contract design, risk, monitoring

Suggested Citation

Marques, Rui Cunha and Berg, Sanford V., Revisiting the Strengths and Limitations of Regulatory Contracts in Infrastructure Industries (June 25, 2009). Journal of Infrastructure Systems, Vol. 16, No. 4, pp. 334-342, December 2010, Available at SSRN: https://ssrn.com/abstract=1907804

Rui Cunha Marques

Technical University of Lisbon (UTL) - Centre for Management Studies (CEG-IST) ( email )

Technical University of Lisbon
Avenida Rovisco Pais
Lisbon, 1049-001
Portugal
+351218418305 (Phone)

Sanford V. Berg (Contact Author)

University of Florida - Department of Economics ( email )

Gainesville, FL 32611-7140
United States
352-392-0132 (Phone)
352-392-7796 (Fax)

HOME PAGE: http://www.cba.ufl.edu/purc/facultyinfo.asp?WEBID=1260

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