Engel E., Fisher R., Galetovic A. (1997).
Highway Franchising: Pitfalls and Opportunities. American Economic Review, Vol. 87, No. 2, 68-72.
We build a conceptual framework to analyze the virtues and limitations of alternative mechanisms that can be used to auction a highway. We argue that current mechanisms, which fix the term of the franchise, create unnecesary risk and facilitate post-contract opportunism by the regulator and the franchise-holder. We propose a new mechanism that allocates the franchise to the firm asking the least present value of toll revenue. We argue that this mechanisms is clearly superior to those currently in use.