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Quality of Outsourced Services, Opportunism and Contract Design

Author

Listed:
  • Beuve Jean

    (Department of Economics, University of Paris I Panthéon Sorbonne, Paris, France)

  • Chever Lisa

    (EPPP Chair – Sorbonne Business School, Paris, France)

Abstract

This paper estimates the impact of contract design on the enforceability of quality in outsourced public contracts. Using panel data from 102 cleaning contracts, our results suggest that quality enforcement depends highly on the ex ante contracting process. Such findings are consistent with recent theoretical contributions which consider that the verifiability of agents’ actions is endogenously determined by the principals’ investments in drafting an explicit contract pertaining to the quality of the agent’s output. Moreover, since those quality improvements are not accompanied by price increases, our results suggest that public contract managers have significant leeway to reduce opportunistic behavior for standard transactions.

Suggested Citation

  • Beuve Jean & Chever Lisa, 2017. "Quality of Outsourced Services, Opportunism and Contract Design," Review of Law & Economics, De Gruyter, vol. 13(3), pages 1-27, November.
    • Handle: RePEc:bpj:rlecon:v:13:y:2017:i:3:p:27:n:1
    DOI: 10.1515/rle-2014-0053
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    Citations

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    Cited by:

    1. Francesco Decarolis & Giancarlo Spagnolo & Riccardo Pacini, 2016. "Past Performance and Procurement Outcomes," NBER Working Papers 22814, National Bureau of Economic Research, Inc.

    More about this item

    Keywords

    outsourcing services; quality; enforcement; contract design; monitoring;
    All these keywords.

    JEL classification:

    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • L15 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Information and Product Quality
    • L24 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Contracting Out; Joint Ventures

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