Opportunistic Behavior and Legal Disputes in the Chilean Electricity Sector

Abstract

In this paper I analyze post-contractual disputes in the newly privatized electricity sector in Chile. I discuss the presumption that opportunistic behavior and disputes arise due to inadequate market design, ambiguous regulation, and institutional weaknesses. I also assess the presumption that a large number of legal (public) disputes are inhibited by the nonexistence of institutions able to verify and enforce contracts. An in-depth analysis of 6 cases of open con‡ict provides support to such presumptions and highlights the crucial role of an adequate (preprivatization) market design. In addition, it concludes that the reduced number of open con‡icts observed in Chile is probably due to institutional weaknesses, which induces the parties to use private con‡ict resolution mechanisms.