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Government Concession Contracts in Chile: The Role of Competition in the Bidding Process

Over the last 12 years, Chile has been very successful in attracting private participation in the provision of public infrastructure. Private capital has gone into road infrastructure, ports, and airports all over the country in the form of concessions. The aim of the 1991 Concession Law and that of the specific contracts associated with each project has been to provide much-needed infrastructure efficiently, without committing government resources better employed elsewhere. Using the contracts of four infrastructure projects involving the private sector in Chile, we show that, even though these projects and the concessions program are positively evaluated, design flaws in the auction setup directly or indirectly reduced competition in the bidding process, negatively affected performance, created incentives for ex post renegotiation, and precluded welfare maximization.