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Opportunism and Hold-up in the Incomplete Public Private Partnership (PPP) Contracts

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  • Chandan Kumar

Abstract

This paper attempts to find the answer to this question. It examines the contract design of the Indian PPP road contracts and analyzes its strengths and weaknesses to avoid the opportunism or hold-up using the probabilistic framework. This framework suggests that each type of contract should have its own self-enforcing range to make it incentive compatible. This paper compares the risk allocated in the two types of contracts (i.e. linked and delinked contracts) for delivering the project on time. Further, it empirically tests these findings using 82 PPP projects.

Suggested Citation

  • Chandan Kumar, 2018. "Opportunism and Hold-up in the Incomplete Public Private Partnership (PPP) Contracts," Working Papers id:12687, eSocialSciences.
    • Handle: RePEc:ess:wpaper:id:12687
    Note: Institutional Papers
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    References listed on IDEAS

    as
    1. Klein, Benjamin, 1980. "Transaction Cost Determinants of "Unfair" Contractual Arrangements," American Economic Review, American Economic Association, vol. 70(2), pages 356-362, May.
    2. Grossman, Sanford J & Hart, Oliver D, 1986. "The Costs and Benefits of Ownership: A Theory of Vertical and Lateral Integration," Journal of Political Economy, University of Chicago Press, vol. 94(4), pages 691-719, August.
    3. Aghion, Philippe & Dewatripont, Mathias & Legros, Patrick & Zingales, Luigi (ed.), 2016. "The Impact of Incomplete Contracts on Economics," OUP Catalogue, Oxford University Press, number 9780199826216.
    4. Klein, Benjamin, 1996. "Why Hold-Ups Occur: The Self-Enforcing Range of Contractual Relationships," Economic Inquiry, Western Economic Association International, vol. 34(3), pages 444-463, July.
    5. Philippe Aghion & Mathias Dewatripont & Patrick Legros & Luigi Zingales, 2016. "The Impact of Incomplete Contracts on Economics," ULB Institutional Repository 2013/249190, ULB -- Universite Libre de Bruxelles.
    6. James H. Love, 2010. "Opportunism, Hold-Up and the (Contractual) Theory of the Firm," Journal of Institutional and Theoretical Economics (JITE), Mohr Siebeck, Tübingen, vol. 166(3), pages 479-501, September.
    7. Phillipe Aghion & Nicholas Bloom & John Van Reenen, 2014. "Incomplete Contracts and the Internal Organization of Firms," The Journal of Law, Economics, and Organization, Oxford University Press, vol. 30(suppl_1), pages 37-63.
    8. Klein, Benjamin & Crawford, Robert G & Alchian, Armen A, 1978. "Vertical Integration, Appropriable Rents, and the Competitive Contracting Process," Journal of Law and Economics, University of Chicago Press, vol. 21(2), pages 297-326, October.
    9. Williamson, Oliver E, 1971. "The Vertical Integration of Production: Market Failure Considerations," American Economic Review, American Economic Association, vol. 61(2), pages 112-123, May.
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    More about this item

    Keywords

    Opportunism; Hold-up; Contracts; Public Private Partnership; design; low probability; possible opportunism; accountability; Indian PPP contracts; India;
    All these keywords.

    JEL classification:

    • D86 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Economics of Contract Law
    • 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
    • O22 - Economic Development, Innovation, Technological Change, and Growth - - Development Planning and Policy - - - Project Analysis

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