Engel E., Fisher R., Galetovic A. (1997). Highway Franchising: Pitfalls and Opportunities. American Economic Review, vol. 87, 68-72.

Most developing countries urgently need massive highway construction programs. For this reason, a growing number of countries are auctioning highway franchises to the private sector. In these auctions, it is usual for the regulator to fix the length of the highway franchise, say, for 20 years, and for firms to bid on the toll. The benefits from privatizing highways are well known by now: gains in efficiency, avoidance of” white elephants,” easier access to financing, and fewer political pressures to reduce tolls. Assigning the franchise in a competitive auction should lead to the same outcome that would be obtained in a competitive market: competition for the field rather than in the field (Edwin Chadwick, 1859). Nevertheless, worldwide experience shows that there are some important pitfalls that offset these benefits. Most prominent among them are (a) the frequent use of government guarantees, thereby reducing incentives …

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