Disincentivising overbidding for toll road concessions

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DISINCENTIVISING OVERBIDDING FOR TOLL ROAD CONCESSIONS •• Experiment design and subjects—importantly in the context of concessions, evidence of a winner’s curse has also been found to hold when the experimental subjects are construction firm managers, rather than students, 128 where participants are given full financial liability for losses made during the experiments, 129 and in situations where the number of bidders is determined endogenously, such that subjects can decide whether or not they wish to participate in an auction. 130 •• Bid group size—Kagel and Levin (1986) compared the outcomes of auctions across different bidding group sizes. 131 In the small groups, the authors recorded mean positive profits of US$4.32 per auction. In the large groups, however, the winning bidder made an average loss of US$0.54 and exceeded the value of the item in 54% of auctions. The authors found that, contrary to what rational bidding theory would suggest, subjects bid more aggressively, rather than less so, in large groups. 128 Dyer, D., Kagel, J.H. and Levin, D. (1989), ‘A Comparison of Naive and Experienced Bidders in Common Value Offer Auctions: Laboratory Analysis’, Economic Journal, 99, 108–15. 129 Lind, B. and Plott, C.R. (1991), ‘The Winner’s Curse: Experiments with Buyers and Sellers’, American Economic Review, 81, 335–46. 130 Cox, J., Dinkin, S. and Swarthout, J. (2001), Endogenous Entry and Exit in Common Value Auctions’, Experimental Economics, 4:2, 161–81. 131 Kagel and Levin (1986), op. cit. 72
A3 │ TRAFFIC AND REVENUE REPORTS: BEST PRACTICE A31 Traffic and revenue reports: best practice 132 The following article was written by Robert Bain (RBconsult). It is reproduced here as it offers recommendations about the structure and content of toll road traffic and revenue forecasting reports. In line with the general PPP philosophy, these recommendations focus on the output (the final report), leaving consultants to design their research and traffic modelling activities as they feel appropriate. During my years with the Infrastructure Team at Standard & Poor’s and, more recently, running my own technical consultancy for banks and institutional investors, I have reviewed over 100 toll road traffic and revenue (T&R) study reports from around the world. Traffic consultants often self-define their work as ‘investment grade’, however my analysis suggests that this is commonly more of a marketing ploy than a serious attempt to understand and respond to the needs of potential financiers. The traffic studies themselves typically represent variations on a similar theme – however the variance in the quality of reporting is staggering. This is unhelpful at a time when international investor confidence in traffic forecasts is at an all time low. If toll roads globally are going to reassert themselves as attractive investment propositions to a broad investor base, project risk and uncertainty needs to be better understood and communicated. Improved study reporting has a central role to play in that context and those commissioning traffic studies need to be more demanding in their terms of reference. For too long, the outputs from traffic studies have been dictated by traffic consultants – not their clients. From my reviews – and from numerous discussions with bankers, bondholders, insurers and fund managers – recurring reporting deficiencies have emerged. Addressing these deficiencies would go a long way to restoring investor confidence. The remainder of this article identifies ten simple yet practical ways in which the quality and transparency of toll road T&R study reports could be improved. Clear Presentation of (and Justification for) the Assumptions Used All of the traffic modelling assumptions adopted in a study should be made explicit. This is rarely the case. The assumptions should be consolidated in a single table for easy review, rather than being scattered across different chapters – and strong empirical evidence (with robust justification) should be provided in support. The implications of adopting alternative yet still plausible assumption sets on the resulting forecasts should be highlighted. Addressing these deficiencies would be of considerable benefit to an investor audience. 132 Reproduced with the kind permission of Tollways, the journal of the International Bridge, Tunnel and Turnpike Association (IBTTA). 73
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REVIEW OF THE HEAVY VEHICLE SAFETY
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Disincentivising overbidding for toll road concessions

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