Abstract

The purpose of this article is to analyze how, even with a relatively successful concession program experience such as Chile's, design issues and specific provisions added to the contracts by interested parties negatively affected the bidding rules. In particular, we argue that these issues and provisions reduced competition in the bidding process and affected performance, generating incentives for ex post renegotiation and precluding welfare maximization. We analyze the contracts behind four infrastructure projects involving private participation. All these contracts are currently in force. The main problems in these cases arose because the regulator did not take full advantage of the competitive forces available. We conclude that each contract's performance was adversely affected by the design of the auction rules and specific contract provisions: the design flaw shared by these contracts is that they made only limited use of competition in the bidding process. © 2004 by The University of Chicago. All rights reserved.