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Privatizing Highways in Latin America: Fixing What Went Wrong

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dc.description.abstract This paper reviews the Latin American experience with highway privatization during the last decade. Based on evidence from Argentina, Colombia and Chile, we find that private financing of new highways freed up fewer public resources than expected because public funds were often diverted to bail out franchise holders. Furthermore, many of the standard benefits of privatization did not materialize because of pervasive contract renegotiations. We argue that the disappointing performance of highway privatization in Latin America was due to two fundamental design flaws. First, countries followed a "privatize now, regulate later" approach. Second, most concessions were awarded as a fixed-term franchise, thereby creating a demand for guarantees and contract renegotiations. This paper also extends our previous work on formal models of highway privatization. We relax the self-financing constraint which ruled out the public provision of highways by assumption, and show that whenever the privatization of a highway is optimal, government transfers are undesirable. Alternatively, if government transfers are optimal, it is always the case that the full public provision of the highway should be preferred over privatization. We also model the role of flexibility and opportunistic behavior in highway concession contracts, and show that, by contrast with its fixed term counterpart, a flexible term franchise provides flexibilitywithout inducing opportunistic behavior. en
dc.title Privatizing Highways in Latin America: Fixing What Went Wrong en
dc.contributor.author Engel, Eduardo
dc.contributor.author Fischer, Ronald
dc.contributor.author Galetovic, Alexander
dc.date.accessioned 2014-11-10T19:47:14Z
dc.date.available 2014-11-10T19:47:14Z
dc.date.issued 2003-10
dc.identifier.issn 1529-7470
dc.identifier.uri http://hdl.handle.net/123456789/48717
lacea.language.supported en
dc.contributor.other Comments by Ernesto Schargrodsky and Juan-Pablo Montero
dc.language.iso en
dc.publisher Brookings Institution Press
dc.subject Taxation, subsidies, and revenue
dc.subject Argentina
dc.subject Chile
dc.subject Colombia
dc.subject Transportation
dc.subject Infraestructure
dc.subject Privatization
dc.subject Optimal taxation
dc.type Article


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