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Incentive Contracts for Infrastructure, Litigation and Weak Institutions

Author

Listed:
  • Alfredo Garcia

    ()

  • James Reitzes

    ()

  • Juan Benavides

    ()

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

Suggested Citation

  • Alfredo Garcia & James Reitzes & Juan Benavides, 2005. "Incentive Contracts for Infrastructure, Litigation and Weak Institutions," Journal of Regulatory Economics, Springer, vol. 27(1), pages 5-24, September.
  • Handle: RePEc:kap:regeco:v:27:y:2005:i:1:p:5-24
    DOI: 10.1007/s11149-004-4416-y
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    File URL: http://hdl.handle.net/10.1007/s11149-004-4416-y
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    References listed on IDEAS

    as
    1. 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.
    2. J. Luis Guasch, 2004. "Granting and Renegotiating Infrastructure Concessions : Doing it Right," World Bank Publications, The World Bank, number 15024.
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    Citations

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    Cited by:

    1. 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 729-770, September.
    2. Deffains, Bruno & Demougin, Dominique & Desrieux, Claudine, 2017. "Choosing ADR or litigation," International Review of Law and Economics, Elsevier, vol. 49(C), pages 33-40.
    3. 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.
    4. Eduardo Araral, 2014. "Policy and regulatory design for developing countries: a mechanism design and transaction cost approach," Policy Sciences, Springer;Society of Policy Sciences, vol. 47(3), pages 289-303, September.
    5. 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.

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