An Institutional Theory of Public Contracts: Regulatory Implications
The fundamental feature of private contracting is its relational nature. When faced with unforeseen or unexpected circumstances, private parties, as long as the relation remains worthwhile, adjust their required performance without the need for costly renegotiation or formal recontracting. Public contracting, on the other hand, seems to be characterized by formalized, standardized, bureaucratic, rigid procedures. Common wisdom sees public contracts as generally more inflexible, requiring more frequent formal renegotiation, having a higher tendency to litigate, and providing weaker incentives. In sum, public contracts are perceived to be less "efficient." In this paper I develop a theory of public contracting that accommodates these stark differences between private and public contracting. The thrust of the paper is that these differences arise directly because of the different hazards present in public and purely private contracts, which directly impact the nature of the resulting contractual forms. A fundamental corollary of this result is that the perceived inefficiency of public or governmental contracting is simply the result of contractual adaptation to different inherent hazards, and as such is not directly remediable. Finally, I apply the main insights from the general framework developed here to understand the characteristics of concession contracts.
|Date of creation:||Aug 2008|
|Date of revision:|
|Contact details of provider:|| Postal: National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A.|
Web page: http://www.nber.org
More information through EDIRC
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Douglass C North & John Joseph Wallis & Barry R. Weingast, 2006. "A Conceptual Framework for Interpreting Recorded Human History," NBER Working Papers 12795, National Bureau of Economic Research, Inc.
- de Figueiredo, Rui J P, Jr & Spiller, Pablo T & Urbiztondo, Santiago, 1999. "An Informational Perspective on Administrative Procedures," Journal of Law, Economics and Organization, Oxford University Press, vol. 15(1), pages 283-305, April.
- Bajari, Patrick & Tadelis, Steven, 2001.
"Incentives versus Transaction Costs: A Theory of Procurement Contracts,"
RAND Journal of Economics,
The RAND Corporation, vol. 32(3), pages 387-407, Autumn.
- Patrick Bajari & Steven Tadelis, 1999. "Incentives versus Transaction Costs: A Theory of Procurement Contracts," Working Papers 99029, Stanford University, Department of Economics.
- McCubbins, Mathew D & Noll, Roger G & Weingast, Barry R, 1987. "Administrative Procedures as Instruments of Political Control," Journal of Law, Economics and Organization, Oxford University Press, vol. 3(2), pages 243-77, Fall.
- Jean-Jacques Laffont & Jean Tirole, 1993. "A Theory of Incentives in Procurement and Regulation," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262121743.
- Levy, Brian & Spiller, Pablo T, 1994. "The Institutional Foundations of Regulatory Commitment: A Comparative Analysis of Telecommunications Regulation," Journal of Law, Economics and Organization, Oxford University Press, vol. 10(2), pages 201-46, October.
- Williamson, Oliver E, 1983. "Credible Commitments: Using Hostages to Support Exchange," American Economic Review, American Economic Association, vol. 73(4), pages 519-40, September.
- Greif, Avner, 1993. "Contract Enforceability and Economic Institutions in Early Trade: the Maghribi Traders' Coalition," American Economic Review, American Economic Association, vol. 83(3), pages 525-48, June.
- Williamson, Oliver E, 1979. "Transaction-Cost Economics: The Governance of Contractural Relations," Journal of Law and Economics, University of Chicago Press, vol. 22(2), pages 233-61, October.
- Richard J. Gilbert & Michael H. Riordan, 1995. "Regulating Complementary Products: A Comparative Institutional Analysis," RAND Journal of Economics, The RAND Corporation, vol. 26(2), pages 243-256, Summer.
- George Baker & Robert Gibbons & Kevin J. Murphy, 2001. "Bringing the Market inside the Firm?," American Economic Review, American Economic Association, vol. 91(2), pages 212-218, May.
- Greenstein, Shane, 1993. "Procedural Rules and Procurement Regulations: Complexity Creates Trade-offs," Journal of Law, Economics and Organization, Oxford University Press, vol. 9(1), pages 159-80, April.
When requesting a correction, please mention this item's handle: RePEc:nbr:nberwo:14152. 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 references are entirely missing, you can add them using this form.