Maria Victoria Murillo and Alison E. Post have an interesting new paper out entitled, "Infrastructure Investment in Weak Institutional Contexts: Exit Threats and Regulatory Bargaining in the Argentine Electricity and Water Sectors." It's well worth reading, as it rewrites some of the traditional strategies adopted by infrastructure investors in difficult institutional contexts. Here's the abstract:

Inspired by Hirschman's classic Exit, Voice and Loyalty (1970), a venerable line of scholarship in political economy has argued that government economic policy can be influenced by investor threats of exit. Exit threats issued by firms operating in capital-intensive industries such as infrastructure and utilities are assumed to be less credible, which makes them vulnerable to governmental opportunism, particularly in weak institutional environments that provide few checks upon policymakers. The vulnerability of firms operating in weak institutional environments is heightened because of the intensity and frequency of economic crises in such settings. These crises typically prompt governments to revise original contractual conditions. This paper offers a new framework for understanding project and sector-level variation in post-crisis negotiation outcomes that turns standard exit cost arguments on their head. We argue that investors that are more patient as a result of high exit costs and that can draw on a broad range of informal bargaining strategies are more likely to conclude contract renegotiations yielding crucial changes that allow them to operate on more favorable terms in a given market. This paper assesses the explanatory power of this argument through an examination of an original panel dataset of exit decisions and contract renegotiation outcomes in the electricity distribution and water and sanitation sectors in Argentina following the 2001-2002 macroeconomic crisis.

Posted by ashby at September 27, 2011 10:15 AM