Concession contract design in developing countries: a bus rapid transport system for Cartagena, Colombia

In the past decade concessions for infrastructure in developing countries have become increasingly prevalent as a result of the perceived benefits to the country and its inhabitants. These infrastructure concession contracts delineate the allocation of rights, risks, costs, and incentives among the contracting parties. While the burgeoning growth of concessions for infrastructure is encouraging, the high rate of renegotiation of these concession contracts is not. Over 40% of concessions are renegotiated after, on average, 2.2 years of the contract signing date (Guash, Laffont, and Straub, 2002); the common change being a real-location of risks among the parties. We examine the proposed concession for a bus rapid transport (BRT) system in Cartagena, Colombia. By examining the legal environment of Colombia and building a model to simulate the operation of the concession, we provide a policy recommendation applicable to the BRT and concessions for infrastructure in developing countries in general.