publication . Preprint . 2004

Soft Budgets And Highway Franchising

Eduardo Engel; Ronald Fischer; Alexander Galetovic;
Open Access
  • Published: 01 Jan 2004
Abstract
Latin American governments progressively substituted build–operate–and–transfer (BOT) contracts for government–provided highways during the nineties. Because under BOT a private franchise holder finances and operates the road in exchange for tolls, it is often claimed that BOT represents a privatization of highways. We argue that, as currently applied, the BOT model is an imperfect and incomplete privatization, because the franchise holders’ budget constraint has been soft, with losses being shifted to tax payers via minimum income guarantees and contract renegotiations. Soft budget constraints are inconsistent with the standard arguments in favor of BOT contrac...
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