The Franchise Contract Renegotiation Mechanism Of Infrastructure Industry

Infrastructure industry is the basis of the development of the national economy, In order to reduce the financial burden of the government, promote competition, improve service efficiency. Franchising has gradually become the mainstream mode. As more and more local governments take the franchise contracts instead of the original management mode.The franchise contract is the agreement between the government and the private sector on the rights and obligations of project construction, operation, income and other things. But contract theory tells us, because of limited rationality, the complexity and uncertainty of the external environment, the contract signed between the government and the private sector is incomplete contract. While some problems and disputes occur afterwards, then the renegotiation is inevitable.The renegotiation has been very popular in Latin America, It happens frequently in our country. Through some case facts, There exists a positive effect of renegotiation, renegotiation can continuously adjust the various issues of the franchise contract, finally realize the Pareto improvement. But the negative effects of renegotiation is more obvious, It shows that opportunistic renegotiation seriously damaged the benefit of consumers, the negative effects have two main types : one is the private sector-to-government hold up, which involves a wide range. the private sector appears opportunistic behavior, he will initiate renegotiation to the government to modify the contract, raise the price or extend the charging period. In order to guarantee the sustainable supply, the result of renegotiation is the government bow down to the private sector and damage the consumers’ benefits.The other is government- the private sector hold up, which involves a small range. Because government has strong power, so the private sector is often hold up by the government. Under the interests of his own or under pressure on consumers, he will modify the contract in advance. The result of renegotiation is the decline of investment incentives and the loss of the consumers’ benefits.According to the result of the renegotiation is at the expense of the benefits of consumers, the interests of all parties lose balance, contracts cannot be carried out, the development of infrastructure industry is limited, so It has become very necessary to design the renegotiation mechanism.The renegotiation is at the expense of the benefits of consumers, Government made a mechanism design for this, so that renegotiation can achieve the interests of all parties and gain the maximum benefit. The hold up with the private sector to the government, government made a mechanism design for this. Renegotiation situation conclude the private sector asks price increase, extend the charging period or improve the income distribution and many kinds. This article is to raise the price of the private sector, so the government designs a mechanism to encourage the private sector to tell the truth through incentive rationality constraint and incentive compatibility, Ensure the private sector to realize his own profit and realize the maximization of social welfare. The hold up with the government to the private sector, to effectively restrict the government commitment, through the design of a punishment mechanism, achieving the equilibrium of the government performance and the private sector investment, at the same time, it also protect the interest of the consumer, So all parties can gain the maximum benefit to promote the healthy and sustainable development of infrastructure.The models and cases tell us that we can optimize renegotiation process through improving consumers’ participation, introducing the third party, ensuring open and transparent information, following the fair expression, Strengthening the legal system and improving the system of endowment, so that renegotiation become much fairer. As far as possible to take into account the interests of consumers, So all parties can gain the maximum benefit to promote the healthy and sustainable development of infrastructure.