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Contract renegotiation and rent re-distribution: Who gets raked over the coals?

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Author Info

  • Kosnik, Lea
  • Lange, Ian

Abstract

Policy shocks affect the rent distribution in long-term contracts, which can lead to such contracts being renegotiated. We seek an understanding of what aspects of contract design, in the face of a substantial policy shock, affect the propensity to renegotiate. We test our hypotheses using data on U.S. coal contracts after the policy shock of the 1990 Clean Air Act Amendments. Contracts are divided into two categories, those that were renegotiated following the shock and those that were not. Characteristics of the contract are used to explain whether or not the contract was ultimately renegotiated. Results provide guidance on rent re-distribution and contract renegotiation more generally and are applicable to contemporary policy issues such as climate change legislation.

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Bibliographic Info

Article provided by Elsevier in its journal Journal of Environmental Economics and Management.

Volume (Year): 62 (2011)
Issue (Month): 2 (September)
Pages: 155-165

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Handle: RePEc:eee:jeeman:v:62:y:2011:i:2:p:155-165

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Web page: http://www.elsevier.com/locate/inca/622870

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Keywords: Contract renegotiation Coal contracts Acid rain;

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Cited by:
  1. Corrado Di Maria & Ian A. Lange & Edwin van der Werf, 2012. "Should we be Worried about the Green Paradox? Announcement Effects of the Acid Rain Program," CESifo Working Paper Series 3829, CESifo Group Munich.

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