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Opportunism and third-party influence on long-term public contracts

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  • Ruiz Díaz, Gonzalo

Abstract

This article illustrates the influence of interest groups on government and concessionaire contractual behavior in long-term public contracts. We show that government political commitments with stakeholders may represent a ‘reputational investment’, which reduces the incentives to enforce the contract and increases the willingness to accept renegotiation proposals. When observed by the concessionaire, particularly concerning ‘politically sensitive’ projects, this situation can be exploited to capture additional quasi-rents from the exchange relationship. Using a simple model and a case study, we show that the interactions of parties with influential stakeholders, in the context of weak institutions, can create favorable conditions for opportunistic behavior.

Suggested Citation

  • Ruiz Díaz, Gonzalo, 2019. "Opportunism and third-party influence on long-term public contracts," Utilities Policy, Elsevier, vol. 61(C).
    • Handle: RePEc:eee:juipol:v:61:y:2019:i:c:s0957178719303315
    DOI: 10.1016/j.jup.2019.100978
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    Cited by:

    1. Nur, Suardi & Burton, Bruce & Bergmann, Ariel, 2023. "Evidence on optimal risk allocation models for Indonesian geothermal projects under PPP contracts," Utilities Policy, Elsevier, vol. 81(C).

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    More about this item

    Keywords

    Opportunism; Stakeholders; Long-term contracts;
    All these keywords.

    JEL classification:

    • L14 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Transactional Relationships; Contracts and Reputation
    • L33 - Industrial Organization - - Nonprofit Organizations and Public Enterprise - - - Comparison of Public and Private Enterprise and Nonprofit Institutions; Privatization; Contracting Out
    • L51 - Industrial Organization - - Regulation and Industrial Policy - - - Economics of Regulation
    • D72 - Microeconomics - - Analysis of Collective Decision-Making - - - Political Processes: Rent-seeking, Lobbying, Elections, Legislatures, and Voting Behavior

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