Italian Concession Contracts for Water and Sewerage System : An Empirical Analysis

We argue that the concession contracts in the Italian water sector may have been shaped by the very local circumstances. In turn, different contract designs may have influenced the aptitude of bidding companies. To investigate these issues, we assemble an original dataset and two composite indices to characterise each contract according to: the strength of the incentives, and the degree of complexity. The results show that cost-plus contracts are vague and associated to public ownership and direct delegation, though few of them have been auctioned and have indeed attracted a large number of bidders. Incentive schemes tend to be more detailed and are usually contracted out through public auctions, but the number of bids decreases with the power of incentives. The analysis reveals a serious paradox: competition for the market has been very weak in high-powered contracts, whilst the number of participants has been high only in the presence of cost plus schemes