renegotiation of concession contracts in latin america the authors construct a regulation model in which renegotiation occurs due to the imperfect enforcement of concession contracts this enables the authors to provide theoretical predictions for the impact on the probability of renegotiation of a concession regulatory institutions institutional features economic shocks and the characteristics of the concession contracts then they use a data set of nearly 1 000 concessions awarded in latin america and the caribbean countries from 1989 to 2000 covering the sectors of telecommunications energy transport and water to test these predictions finally the authors derive some policy implications of their theoretical and empirical work

patent validation at the country level the role of fees and translation costs one feature of the european patent system that is heavily criticized nowadays is related to its complex fragmentation and the induced cost burden for applicants once a patent is granted by the epo the assignee must validate and often translate it and pay the renewal fees to keep it in force in each country in which the applicant seeks protection the objective of this paper is to assess to what extent validation and renewal fees as well as translation costs affect the validation behavior of applicants we rely on a gravity model that aims at explaining patent flows between inventor and target countries within the european patent system the results show that the size of countries their wealth and the distance between their capital cities are significant determinants of patent flows validation fees and renewal fees further affect the validation behavior of applicants translation costs seem to have an impact as well the important role played by fees suggests that the implementation of cost reducing policy interventions like the london protocol would induce a significant increase in the number of patents validated in each european country

estimating electricity demand the cost of linearising the budget constraint this paper derives elasticity estimates for the electricity demand of a cross section of residential customers in medellin colombia where prices follow a rising block scheme it contrasts methods following jerry hausman 1979 1985 with those based on harvey rosen 1976 to resolve the difference between the results produced by the two methods it uses a generalized selectivity bias corrections method due to frank vella 1990 copyright 1992 by mit press

two remarks on the property rights literature we first point out that the recent property rights literature is based on three assumptions 1 that contracts are always subject to renegotiation 2 that the exercise of a property right confers a private benefit and 3 that parties are risk neutral building on hart moore 1999 we provide conditions under which an optimal contract consists of nothing more than an assignment of property rights we also examine the robustness of some of the literature s standard predictions about asset ownership to the introduction of mechanisms for eliciting parties ex post willingness to pay for the assets such as options or financial markets to illustrate the issue we revisit the hart moore 1990 proposition that joint ownership is suboptimal and argue that ownership by a single party is dominated by joint ownership with put options

renegotiation of concession contracts in latin america evidence from the water and transport sectors abstract high rates of contract renegotiation have raised serious questions about the viability of the concession model to attract private participation in infrastructure in developing countries after extending in reduced form a standard regulation model in which renegotiation occurs due to the imperfect enforcement of concession contracts we use a unique data set of 307 concessions awarded in latin america from 1989 to 2000 covering the sectors of transport and water to analyze the determinants of this high incidence of renegotiations of infrastructure contracts we look in details at the impact on the probability of renegotiation of a concession of regulatory institutions institutional features economic shocks and of the characteristics of the concession contracts themselves we then derive some policy implications of our work

renegotiation design with unverifiable information this paper considers a buyer seller relationship with observable but unverifiable investments and or random utility parameters in such situations it is known that contract renegotiation may prevent the implementation of first best outcomes in this paper we show however that efficient investments and optimal risk sharing can typically be achieved provided the initial contract is able to monitor the ex post renegotiation process specifically we focus on the following two features of renegotiation design first default options in case renegotiation breaks down second the allocation of all bargaining power to either contracting party moreover we show that these two features can be obtained in standard rubinstein bargaining games through contractual provisions such as specific performance clauses and penalties for delay or equivalently financial hostages refundable without interest

concessions of infrastructure in latin america government led renegotiation this paper analyzes government led renegotiations in infrastructure concession contracts in latin america based on the same sample used in guasch laffont and straub 2003 to examine firm led renegotiations after extending the theoretical framework to a multiple period context in which both pareto improving and rent shifting renegotiations at the initiative of the government can occur we develop an original instrumental variable strategy to address the issue of contract endogeneity and derive empirical results while some of the main insights concerning the importance of having a regulator in place when awarding concessions and the fragility of price cap regulatory schemes are unchanged significant differences arise with respect to the effect of investment and financing as well as the corruption variables we provide evidence that a good regulatory framework is especially important in contexts with weak governance and political opportunism copyright 2007 john wiley sons ltd

cooperative investments and the value of contracting recent articles have shown that contracts can support the efficient outcome for bilateral trade even in the face of specific investments and incomplete contracting these studies typically considered selfish investments that benefit the investor e g the seller s investment reduces her production costs the authors find very different results for cooperative investments that directly benefit the investor s partner e g the seller s investment improves the buyer s value of the good most importantly if committing not to renegotiate the contract is impossible then contracting has no value i e the parties cannot do better than to abandon contracting altogether in favor of ex post negotiation

cheap talk and bogus network externalities in the emerging technology market many emerging technologies exhibit path dependent demands driven by positive network feedback such network effects profoundly impact marketing strategists thinking in today s network economy however the significant network externalities expected by many people often fail to materialize in the emerging technology market we analyze this phenomenon in the context of a technology distribution channel by studying cheap talk strategies under information asymmetry we show that incentive compatible contracts are essential for achieving credible information transmission in our model the better informed technology vendor has an incentive to inflate the retailer s ex ante belief of network externalities when a wholesale price contract is adopted when properly termed revenue sharing contracts are implemented there are information efficient cheap talk equilibria where truthful information transmission is mutually beneficial when the vendor s information is imperfect even revenue sharing contracts cannot guarantee credible information transmission if there is significant prior belief disparity between the vendor and the retailer this study demonstrates how information inefficient equilibria e g information blockage arise because of the conflict of interest or the conflict of opinion among channel members it also explores the role of cheap talk in facilitating channel coordination

efficient and nearly efficient partnerships this paper shows in two ways that the degree to which free riding diminishes the performance of deterministic partnerships may be less than has been generally thought first a necessary and sufficient condition is provided for a partnership to sustain full efficiency it implies that many non trivial partnerships sustain efficiency such as generic ones with finite action spaces and neoclassical ones with leontief technologies second approximate efficiency is shown to be achievable in a large class of partnerships including ones with smooth and monotonic production and disutility functions approximate efficiency is achieved by mixed strategy equilibria one partner takes with small probability an inefficient action the degree to which efficiency is approximated is restricted only by the amount of liability the partners can bear nonetheless their equilibrium payments are not arbitrarily large

ambivalent investment and the hold up problem in this paper we add to the foundations of incomplete contracting literature we study the hold up problem with ambivalent investment where investment benefits the investing party if ex post the right decision is undertaken but harms the investing party if the wrong decision is made in this context we show that the power of contracts to provide investment incentives depends on three factors the commitment value of contracts the amount of quasirents that the investing party can expect in the case of out of contract renegotiation and the degree of ambivalence of investment first contracts provide first best investment incentives when parties can commit to a contract regardless of the type of investment second with sufficiently ambivalent investment if parties cannot commit not to renegotiate a contract and if the investing party s bargaining power is intermediate contracts cannot improve investment incentives above those provided by no contract in contrast a simple buyer or seller option contract is optimal when the investing party s bargaining power is extreme jel d23 k12 l22

a signaling based theory of contractual commitment to relationships abstract in this paper i present signaling as an explanation for how and why parties commit to relationships when they initially contract about the terms of those relationships two forms of contractual commitment to a relationship are considered a promise to trade in the future contracted quantity and a promise not to trade with anyone else contracted exclusivity a party is said to commit more to a relationship if it commits initially to trade a higher quantity and or to a higher level of exclusivity i characterize equilibrium contracts and therefore commitment both the ability to signal information through an exclusivity commitment and whether the informed party commits more to the relationship when the relationship is more likely to succeed depend on the source of the asymmetry of information

ex post renegotiation proof mechanism design we study what kind of equilibria of which mechanisms are ex post renegotiation proof eprp i e robust against the possibility of ex post renegotiation under a variety of renegotiation procedures and which social choice functions are eprp implementable in complete information environments with two agents only budget balanced groves allocations are eprp implementable while with three or more agents all ex post efficient allocations are in environments with independent private values essentially only the budget balanced groves in expectations allocations are eprp implementable while with three or more agents and correlated beliefs all ex post efficient allocations are

the hold up problem in a repeated relationship abstract much of the literature on what determines the scope of operations of a producer has centered on the hold up problem the standard results indicate the hold up problem may lead to suboptimal investments and therefore integration may improve the organization of production in this paper we consider a repeated relationship with durable investments and show the possibility of integration improves the choice of investments and there is no integration in equilibrium the equilibrium contract is non exclusive in order to allow the buyer to choose integration in later periods we derive this result in the presence of very simple and incomplete contracts

holdups standard breach remedies and optimal investment in bilateral trading problems the parties may be hesitant to make relationship specific investments without adequate contractual protection we postulate that the parties can sign noncontingent contracts prior to investing and can freely renegotiate them after information about the desirability of trade is revealed we find that such contracts can induce one party to invest efficiently when courts impose either a breach remedy of specific performance or expectation damages moreover specific performance can induce both parties to invest efficiently if a separability condition holds expectation damages on the other hand is poorly suited to solve bilateral investment problems forthcoming the american economic review please contact the program in law and economics at boalt hall school of law uc berkeley berkeley ca 94720 for a copy of this paper

contractual signaling relationship specific investment and exclusive agreements i analyze a model of hold up with asymmetric information at the contracting stage the asymmetry of information concerns the value of trade with external parties i show that contractual signaling and efficiency of investment can conflict if only quantity is contractible this conflict generates inefficient equilibria in terms of investment contracting on exclusivity in addition to quantity resolves the conflict and consequently eliminates the inefficiency of investment

complexity and renegotiation a foundation for incomplete contracts the paper considers a hold up model where only one of n future trading opportunities will prove to be efficient and where ex post renegotiation of the ex ante contract cannot be prevented as the environment becomes more complex n the outcome under any message contingent long term contract converges to that of the incomplete contracting model where trade is contractible ex post but not ex ante when trades are costly to describe both ex ante and ex post the incomplete contracting result is extended to a broader class of environments

subgame perfect implementation this paper examines the use of stage mechanisms in implementation problems and provides a partial characterization of the set of subgam e perfect implementable choice rules it is shown that in many economic environments virtually an y choice rule can be implemented to illustrate the power of this approach the paper discusses a number of models in which it is possible to implement the first best although it wouldn t have been possible to do so without using stage mechanisms the diversity of these models suggests that subgame perfect implementation may find wide application copyright 1988 by the econometric society

the mirrlees approach to mechanism design with renegotiation with applications to hold up and risk sharing the paper studies the implementation problem first analyzed by maskin and moore 1999 in which two agents observe an unverifiable state of nature and may renegotiate inefficient outcomes following play of the mechanism we develop a first order approach to characterizing the set of implementable utility mappings in this problem paralleling mirrlees s 1971 first order analysis of standard mechanism design problems we use this characterization to study optimal contracting in hold up and risk sharing models in particular we examine when the contracting parties can optimally restrict attention to simple contracts such as noncontingent contracts and option contracts where only one agent sends a message

trade disputes and settlement we develop a model of trade agreements with renegotiation and imperfectly verifiable information in equilibrium trade disputes can occur and can be resolved in a variety of ways governments may settle early or trigger a court ruling and in the latter case they may implement the ruling or reach a post ruling settlement the model yields predictions on how the dispute outcome depends on the contracting environment and how it correlates with the optimal contract form we find support for a key prediction of our model using data on the outcomes of actual trade disputes in the general agreement on tariffs and trade world trade organization

does relationship specific investment depend on asset ownership evidence from a natural experiment in the housing market the classic hold up model grossman and hart 1986 predicts that allocations of asset ownership which expose a party to expropriation reduce relationship specific investments by this party in the empirical context of t he housing market i show that the hold up model predicts more relationship specific investments such as bathroom renovations in owner occupied housing than in rental housing i confirm this prediction for the german housing market to ob tain an exogenous variation of asset home ownership i use the natural experiment of the german reunification under the communist regime ownership exist ed but was economically meaningless it was a quasi random by product of dwelling choice yet after reunification ownership unexpectedly reacquired legal fo rce

efficiency in partnerships we provide the necessary and sufficient condition for a partnership to be able to sustain efficiency when the output is stochastic when limited liability is imposed we show that only the level of the average liability of the partnership is important the individual levels of liability are irrelevant however the allocation of the total liability among the partners is crucial when additional conditions such as neutrality or individual rationality are imposed

incomplete contracts specific investments and risk sharing an optimal contract design problem is considered contracts which are incomplete and simple are used to investigate the extent to which constrained revisions can mitigate inefficiencies resulting from contractual incompleteness an optimal contract is characterized in two cases first when a contract is being used to facilitate trade between two risk neutral parties who must make relationship specific investments it is possible to implement the first best by a simple contract second when a contract is being used to share risk it is generally not possible to implement the first best when one party is risk neutral however it is possible to implement the first best by assigning all the ex post decision rights to that party

does competition solve the hold up problem in an environment in which heterogeneous buyers and sellers undertake ex ante investments the presence of market competition for matches provides incentives for investment but may leave inefficiencies namely hold up and coordination problems this paper shows using an explicitly non cooperative model that when matching is assortative and investments precede market competition buyers investments are constrained efficient while sellers marginally underinvest with respect to what would be constrained efficient however the overall extent of this inefficiency may be large multiple equilibria may arise one equilibrium is characterized by efficient matches but there can be additional equilibria with coordination failures