publication . Preprint . 2004

Franchise Bidding in the Water Industry – Auction Schemes and Investment Incentives

Urs Meister;
Open Access
  • Published: 20 Dec 2004
Abstract
The periodical re-auction of a water monopoly concession causes the danger of underinvestment. If the life-time of specific assets such as water pipes exceeds the contract length and transferring the ownership of assets is difficult, the incumbent franchisee faces a hold-up problem. Using a simple auction model that considers the specifics of the piped water sector this paper shows that investment incentives may vary depending on the applied auction scheme. The model is designed as a two stage game, where the franchisee decides about investment on the first and competes with a potential market entrant on the second stage. Investment tends to be higher in sealed ...
Subjects
acm: TheoryofComputation_GENERAL
free text keywords: Water, Networks, Franchise Bidding, Investment, jel:Q25, jel:D21, jel:L95, jel:L43

Milgrom, Paul R.; Weber, Robert J.: A Theory of Auctions and Competitive Bidding. Econometrica, Vol. 50, No. 5, September 1982, 1089-1122.

Milgrom, Paul: Auctions and Bidding: A Primer. The Journal of Economic Perspectives, Vol. 3, No. 3, Summer 1989, 3-22.

Abstract
The periodical re-auction of a water monopoly concession causes the danger of underinvestment. If the life-time of specific assets such as water pipes exceeds the contract length and transferring the ownership of assets is difficult, the incumbent franchisee faces a hold-up problem. Using a simple auction model that considers the specifics of the piped water sector this paper shows that investment incentives may vary depending on the applied auction scheme. The model is designed as a two stage game, where the franchisee decides about investment on the first and competes with a potential market entrant on the second stage. Investment tends to be higher in sealed ...
Subjects
acm: TheoryofComputation_GENERAL
free text keywords: Water, Networks, Franchise Bidding, Investment, jel:Q25, jel:D21, jel:L95, jel:L43

Milgrom, Paul R.; Weber, Robert J.: A Theory of Auctions and Competitive Bidding. Econometrica, Vol. 50, No. 5, September 1982, 1089-1122.

Milgrom, Paul: Auctions and Bidding: A Primer. The Journal of Economic Perspectives, Vol. 3, No. 3, Summer 1989, 3-22.

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publication . Preprint . 2004

Franchise Bidding in the Water Industry – Auction Schemes and Investment Incentives

Urs Meister;