Advanced Search
MyIDEAS: Login to save this article or follow this journal

The Efficiency of Incomplete Contracts: An Empirical Analysis of Air Force Engine Procurement

Contents:

Author Info

  • Keith J. Crocker
  • Kenneth J. Reynolds
Registered author(s):

    Abstract

    This article examines the incentives of contractual parties to design agreements that are left intentionally incomplete with regard to future duties or contingencies. More complete contracts mitigate ex post opportunism and the associated distortions in unobservable investment, but at the cost of additional resources expended in ex ante design. The optimal degree of contractual incompleteness involves a tradeoff between these opposing forces, the magnitudes of which may be predicted based on observable characteristics of the transactors and of the exchange environment. The resulting hypotheses are tested using panel data on the pricing procedures using in Air Force engine procurement contracts. We conclude that the degree of contractual completeness chosen in practice reflects a desire by the parties to minimize the economic costs associated with contractual exchange.

    Download Info

    If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
    File URL: http://links.jstor.org/sici?sici=0741-6261%28199321%2924%3A1%3C126%3ATEOICA%3E2.0.CO%3B2-T&origin=repec
    File Function: full text
    Download Restriction: Access to full text is restricted to JSTOR subscribers. See http://www.jstor.org for details.

    As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.

    Bibliographic Info

    Article provided by The RAND Corporation in its journal RAND Journal of Economics.

    Volume (Year): 24 (1993)
    Issue (Month): 1 (Spring)
    Pages: 126-146

    as in new window
    Handle: RePEc:rje:randje:v:24:y:1993:i:spring:p:126-146

    Contact details of provider:
    Web page: http://www.rje.org

    Order Information:
    Web: https://editorialexpress.com/cgi-bin/rje_online.cgi

    Related research

    Keywords:

    References

    No references listed on IDEAS
    You can help add them by filling out this form.

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as in new window

    Cited by:
    1. Josh Lerner & Robert P. Merges, 1997. "The Control of Strategic Alliances: An Empirical Analysis of Biotechnology Collaborations," NBER Working Papers 6014, National Bureau of Economic Research, Inc.
    2. Sen Wang & Tim Bogle & G. Cornelis van Kooten, 2012. "Forestry and the New Institutional Economics," Working Papers, University of Victoria, Department of Economics, Resource Economics and Policy Analysis Research Group 2012-05, University of Victoria, Department of Economics, Resource Economics and Policy Analysis Research Group.
    3. Hideshi Itoh & Hodaka Morita, 2011. "Formal Contracts, Relational Contracts, and the Threat-Point Effect," CESifo Working Paper Series, CESifo Group Munich 3533, CESifo Group Munich.
    4. William P. Rogerson, 1994. "Economic Incentives and the Defense Procurement Process," Journal of Economic Perspectives, American Economic Association, American Economic Association, vol. 8(4), pages 65-90, Fall.
    5. Gian Luigi Albano & Federico Dini & Roberto Zampino, 2008. "Bidding for Complex Projects: Evidence From the Acquisitions of IT Services," Working Papers, Fondazione Eni Enrico Mattei 2008.86, Fondazione Eni Enrico Mattei.
    6. Kosnik, Lea-Rachel, 2014. "Determinants of contract completeness: An environmental regulatory application," International Review of Law and Economics, Elsevier, Elsevier, vol. 37(C), pages 198-208.
    7. Timothy Bresnahan & Jonathan Levin, 2012. "Vertical Integration and Market Structure
      [The Handbook of Organizational Economics]
      ," Introductory Chapters, Princeton University Press, Princeton University Press.
    8. William P. Rogerson, 1993. "Economic Incentives and the Defense Procurement Process," Discussion Papers, Northwestern University, Center for Mathematical Studies in Economics and Management Science 1078, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
    9. repec:hal:journl:halshs-00103116 is not listed on IDEAS
    10. Jean Beuve & St├ęphane Saussier, 2012. "Interfirm cooperation in strategic relationships: the role of formal contract," Industrial and Corporate Change, Oxford University Press, vol. 21(4), pages 811-836, August.
    11. Patrick Bajari & Stephanie Houghton & Steve Tadelis, 2006. "Bidding for Incomplete Contracts: An Empirical Analysis," NBER Working Papers 12051, National Bureau of Economic Research, Inc.
    12. Thomas P. Lyon, 2000. "Competition and Technological Complexity in Procurement: An Empirical Study of Dual Sourcing," Econometric Society World Congress 2000 Contributed Papers, Econometric Society 0420, Econometric Society.

    Lists

    This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

    Statistics

    Access and download statistics

    Corrections

    When requesting a correction, please mention this item's handle: RePEc:rje:randje:v:24:y:1993:i:spring:p:126-146. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: ().

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If references are entirely missing, you can add them using this form.

    If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.