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1997 Documento de Trabajo #15

Highway Franchising: Pitfalls and Opportunities

We build a conceptual framework to analyze the virtues and limitations of alternative mechanisms that can be used to auction a highway. We argue that current mechanisms, which fix the term of the franchise, create unnecesary risk and facilitate post-contract opportunism by the regulator and the franchise-holder. We propose a new mechanism that allocates the franchise to the firm asking the least present value of toll revenue. We argue that this mechanisms is clearly superior to those currently in use.

Eduardo Engel
Ronald Fischer
Alexander Galetovic

Publicado en: American Economic Review, Vol. 87, pp. 68-72, Mayo 1997.