Highway to sell

Why are so many contracts reaching the end of the road?

France’s motorway network was built under a model of public service delegation, granting private operators long-term concessions to build and run the infrastructure in exchange for the right to collect tolls. Unlike more recent concessions, the seven major contracts signed between 1957 and 1971 were never competitively tendered. Representing more than 90% of France’s motorway network under concession, they were negotiated directly between the State and major construction groups. Following a 2015 law that blocked further financing extensions, these contracts are all due to end by 2036.

Why not simply renew with the current operators?

The central difficulty is that incumbent operators possess information that potential competitors and public authorities may not have. Over many years of operation, incumbents have learned a great deal about maintenance costs, traffic patterns, investment needs, and operational risks.

When a concession comes up for renewal, this private information allows the incumbent to exaggerate its costs and demand higher payments. If regulators cannot determine how much compensation is necessary, they will struggle to select the best firms at the lowest cost. However, our model shows that allowing a competitive rival into the process reduces the incumbent’s ability to secure this information rent, producing better outcomes for users and taxpayers.

Does that mean competition is always best?

Our research suggests that the answer is more nuanced. A new auction can attract efficient entrants and create competitive pressure. However, replacing an incumbent is not always costless. A new operator may have less information about the infrastructure and may need time to acquire operational expertise. In some situations, these disadvantages can outweigh the benefits of introducing a new firm.

Competition remains essential, but its design must reflect the information available to different bidders. The key question is how competition should be organized when one participant possesses valuable information accumulated through years of operating the infrastructure.

When incumbents hold a strong information advantage, the optimal auction may deliberately favor new entrants. This may seem unfair, but it reduces information rents by making the threat of replacement more credible. The incumbent is less likely to inflate its costs if it fears losing the contract to a rival.

What if the State manages the motorways directly?

Direct public management has genuine appeal. If the government runs the infrastructure itself, it knows its own costs. This eliminates the information advantage that allows private incumbents to secure rent. The prospect of public management can also strengthen competitive discipline at renewal. If the incumbent faces a credible public alternative, it will have less room to overstate its costs.

But this transparency comes with a trade-off. When a private operator invests in maintenance, operational systems, or workforce skills, it can reduce its future costs. Part of the operator’s reward is an enhanced information advantage that generates rent. Eliminating this advantage removes much of the operator’s incentive to invest. Whether public or private management is preferable depends on the size of these effects and, critically, on the verifiability of investments.

Why is the verifiability of investments so important?

If the incumbent’s investment can be observed and contracted upon, the public authority can require a certain level of investment and compensate for it directly. This solves the hold-up problem in which operators underinvest to avoid handing value to a successor. Unfortunately, investments often involve intangible human assets such as expertise and experience.

To limit these problems, concession contracts can include disclosure requirements, asset valuation rules, and reporting obligations that make investments easier to observe and assess.

If investments are not verifiable, distortions mount up. Operators underinvest to protect themselves, and authorities shy away from switching operators to avoid the risk of destroying value they cannot measure. These problems not only reduce investment and competition, they also lead to higher costs for the public. 

Does it help to break up concessions into smaller lots?

Splitting up a large concession introduces more bidders, deepens competition, and should drive down prices. But motorway operations benefit from economies of scale because a single network operator can pool costs across toll systems, maintenance equipment, and traffic management in ways multiple local operators cannot. 
Understanding the information landscape should again be our first step. Only then can concession renewals be designed to protect both investment incentives and the public interest.

Our analysis suggests that carefully designed multi-concession auctions can achieve an efficient allocation while limiting the large incumbent’s ability to exploit its information advantage. If there is a major information imbalance about those scale economies, this may justify an auction design that favors local operators.

Why do regulators need to take the long view?

The information problems we identify begin long before the renewal stage, creating distortions throughout the life of the contract. In other words, concession renewal should not be treated in isolation as a one-off auction. The rules governing investment, disclosure, and asset valuation that were put in place decades ago shape the information available to firms and policymakers today. Similarly, the contracts signed today will shape investment incentives, information, and renewal decisions in the decades to come.

INSIGHTS FOR POLICYMAKERS

• Who knows the road? – Before any decision, governments need to understand who knows what. How much private information does the incumbent hold? Which investments and costs can be verified? The answers should drive the choice and design of the renewal mechanism.
• Competition may need a helping hand – When incumbents enjoy a significant informational advantage, the optimal renewal mechanism may deliberately tilt toward new entrants to increase competitive pressure and limit information rents.
• Today’s contracts shape tomorrow’s renewal – Disclosure requirements, asset valuation rules, investment obligations, and data-sharing arrangements can all help to reduce the information asymmetries that tend to emerge during concessions.
• No universal solutions – Public management, concession splitting, and competitive tendering involve trade-offs between information rents, investment incentives, and economies of scale. The same principles may also apply in concessions for other public services such as rail, water, and telecoms.

FURTHER READING

To guide infrastructure development, researchers at TSE Infrastructure & Network Center offer expertise for overcoming complex challenges in key areas such as housing, telecoms, transport and utilities. “Highway to sell” and other publications by Philippe Bontems, Marie-Françoise Calmette and David Martimort are available to read on the TSE website.

Article published in TSE Reflect, October 2026