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Opportunism and Third-Party Influence on Long-Term Public Contracts

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  • Gonzalo Ruiz D.

    (Departamento de Economía de la Pontificia Universidad Católica del Perú)

Abstract

The present paper refers to the influence of interest groups and stakeholders on government and concessionaire contractual behavior in long-term public contracts. In particular, we show how government political commitments with interest groups represent a ‘reputational investment’, which reduces the incentives to enforce the contract and increases the willingness to accept renegotiation proposals. This situation, particularly in the case of “high profile” or “politically sensitive” projects, when observed by the private concessionaire, can be exploited to capture additional quasi-rents from the exchange relationship. Using a simple model and a case study of the South Interoceanic Road Project in Peru, we show how interactions of the government with influential stakeholders, in the context of weak institutions, can create favorable conditions for private opportunistic behavior. JEL Classification-JEL: D72 , L14 , L33 , L51 Keywords: Concession, Opportunism, Stakeholder

Suggested Citation

  • Gonzalo Ruiz D., 2018. "Opportunism and Third-Party Influence on Long-Term Public Contracts," Documentos de Trabajo / Working Papers 2018-456, Departamento de Economía - Pontificia Universidad Católica del Perú.
    • Handle: RePEc:pcp:pucwps:wp00456
    DOI: 10.18800/2079-8474.0456
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    References listed on IDEAS

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    1. Eduardo Engel & Ronald Fischer & Alexander Galetovic, 2009. "Soft Budgets and Renegotiations in Public-Private Partnerships," Cowles Foundation Discussion Papers 1723, Cowles Foundation for Research in Economics, Yale University.
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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

    concession; opportunism; stakeholder;
    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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