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Seminario Académico CEA- MIPP por web Zoom - 26 de mayo de 2021 – 12:00 PM Santiago

Specific Investment and Contract Design: Evidence from Public Transportation

Guillermo Diaz (UNAB) (joint with Kei Kawai, Andre Trindade).

Public entities often grant concession rights to private firms for the provision of public services. The design of these contracts can have important implications for cost efficiency. While the regulator is interested in giving incentives for cost-saving non-contractible investments via long term contracts, it also wants to maintain the flexibility of replacing the operator. We analyze empirically this trade-off. We propose a structural model of the game played by a regulator (the principal) and a private operator (the agent). The model incorporates typical features of these contracts such as adverse selection, moral hazard and dynamic investment decisions in assets that are specific to the relation. We then show how to identify and estimate this model using panel data from public transportation contracts in French cities. Our counterfactual experiments compute welfare under the first best and alternative contract designs..

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