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Incentive Contracts for Infrastructure, Litigation and Weak Institutions

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Author Info

  • Alfredo Garcia

    ()

  • James Reitzes

    ()

  • Juan Benavides

    ()

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    Abstract

    In this paper we revisit incentive contract design in a simple setting, after developing a model that captures the fact that in weak institutional settings the procurement of large scale public works through contracts with strong incentives for private firms, may result in excessive litigation over contract terms. This result is possible because we assume that parties in litigation can influence (by purchasing better or more legal services) the observable merits of their case. In weak institutional settings, governments have an inherent disadvantage in these litigation contests. We show that a commitment to a prespecified level of litigation effort by the government, together with weaker incentive contracts, is a more efficient procurement mechanism. Copyright Springer Science+Business Media, Inc. 2005

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    File URL: http://hdl.handle.net/10.1007/s11149-004-4416-y
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    Bibliographic Info

    Article provided by Springer in its journal Journal of Regulatory Economics.

    Volume (Year): 27 (2005)
    Issue (Month): 1 (September)
    Pages: 5-24

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    Handle: RePEc:kap:regeco:v:27:y:2005:i:1:p:5-24

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    Web page: http://www.springerlink.com/link.asp?id=100298

    Related research

    Keywords: incentive contracts; infrastructure provision; litigation; asymmetric information;

    References

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    1. J. Luis Guasch, 2004. "Granting and Renegotiating Infrastructure Concessions : Doing it Right," World Bank Publications, The World Bank, number 15024, October.
    2. Kerf, M. & Gray, R.D. & Irwin, T. & Levesque, C. & Taylor, R.R. & Klein, M., 1998. "Concessions for Infrastructure. A Guide to their Design and Award," Papers 399, World Bank - Technical Papers.
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    Citations

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    Cited by:
    1. Aaron Finkle, 2010. "Contracts in the Shadow of the Law: Optimal Litigation Strategies within Organizations," International Journal of Business and Economics, College of Business, and College of Finance, Feng Chia University, Taichung, Taiwan, vol. 9(2), pages 131-155, August.
    2. Antonio Estache & Liam Wren-Lewis, 2009. "Toward a Theory of Regulation for Developing Countries: Following Jean-Jacques Laffont's Lead," Journal of Economic Literature, American Economic Association, vol. 47(3), pages 729-70, September.
    3. repec:idb:brikps:48058 is not listed on IDEAS
    4. Antonio Estache & L. Wren-Lewis, 2008. "Towards a Theory of Regulation for Developing Countries: Following Laffont's Lead," Working Papers ECARES 2008_018, ULB -- Universite Libre de Bruxelles.
    5. repec:idb:brikps:48218 is not listed on IDEAS

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