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Third-Party Opportunism and the Theory of Public Contracts: Operationalization and Applications

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  • Moszoro, Marian W.
  • Spiller, Pablo T.

Abstract

Public contracts seem to be "expensive" and "inefficient" compared to pure private contracts. Higher prices and inefficiencies in the implementation of public contracts result from their specificity and rigidity, which is how public agents limit hazards from third-party opportunism. We present a comprehensible and testable theory of third-party opportunism and its effects on public contracts. We show that, in the presence of third-party opportunism, there exists an equilibrium in which public contracts are specific and rigid, and thus more expensive in their design, implementation, and control than the theoretical first-best in a non-opportunistic world. We use case examples to extend the theory into practical settings and derive empirical implications.

Suggested Citation

  • Moszoro, Marian W. & Spiller, Pablo T., 2014. "Third-Party Opportunism and the Theory of Public Contracts: Operationalization and Applications," MPRA Paper 101592, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:101592
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    Cited by:

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    2. Jean Beuve & Marian W. Moszoro & Stéphane Saussier, 2019. "Political contestability and public contract rigidity: An analysis of procurement contracts," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 28(2), pages 316-335, April.
    3. Marian W. Moszoro & Pablo T. Spiller, 2016. "Coase and the transaction cost approach to regulation," Chapters, in: Claude Ménard & Elodie Bertrand (ed.), The Elgar Companion to Ronald H. Coase, chapter 19, pages 262-275, Edward Elgar Publishing.

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    More about this item

    Keywords

    Transaction Costs; Procurement; Public Sector Accounting and Audits; Political Processes; Bureaucracy; Policy Making; Political Economy; Opportunism;
    All these keywords.

    JEL classification:

    • D23 - Microeconomics - - Production and Organizations - - - Organizational Behavior; Transaction Costs; Property Rights
    • D72 - Microeconomics - - Analysis of Collective Decision-Making - - - Political Processes: Rent-seeking, Lobbying, Elections, Legislatures, and Voting Behavior
    • D73 - Microeconomics - - Analysis of Collective Decision-Making - - - Bureaucracy; Administrative Processes in Public Organizations; Corruption
    • D78 - Microeconomics - - Analysis of Collective Decision-Making - - - Positive Analysis of Policy Formulation and Implementation
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • H57 - Public Economics - - National Government Expenditures and Related Policies - - - Procurement
    • P48 - Political Economy and Comparative Economic Systems - - Other Economic Systems - - - Legal Institutions; Property Rights; Natural Resources; Energy; Environment; Regional Studies

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