IDEAS home Printed from https://ideas.repec.org/a/eee/juipol/v61y2019ics0957178719303315.html
   My bibliography  Save this article

Opportunism and third-party influence on long-term public contracts

Author

Listed:
  • Ruiz Díaz, Gonzalo

Abstract

This article illustrates the influence of interest groups on government and concessionaire contractual behavior in long-term public contracts. We show that government political commitments with stakeholders may represent a ‘reputational investment’, which reduces the incentives to enforce the contract and increases the willingness to accept renegotiation proposals. When observed by the concessionaire, particularly concerning ‘politically sensitive’ projects, this situation can be exploited to capture additional quasi-rents from the exchange relationship. Using a simple model and a case study, we show that the interactions of parties with influential stakeholders, in the context of weak institutions, can create favorable conditions for opportunistic behavior.

Suggested Citation

  • Ruiz Díaz, Gonzalo, 2019. "Opportunism and third-party influence on long-term public contracts," Utilities Policy, Elsevier, vol. 61(C).
    • Handle: RePEc:eee:juipol:v:61:y:2019:i:c:s0957178719303315
    DOI: 10.1016/j.jup.2019.100978
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S0957178719303315
    Download Restriction: Full text for ScienceDirect subscribers only
    File URL: https://libkey.io/10.1016/j.jup.2019.100978?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to look for a different version below or search for a different version of it.

    Other versions of this item:

    References listed on IDEAS

    as
    1. Eduardo Engel & Ronald Fischer & Alexander Galetovic, 2009. "Soft Budgets and Renegotiations in Public-Private Partnerships," Cowles Foundation Discussion Papers 1723, Cowles Foundation for Research in Economics, Yale University.
    2. Pablo T. Spiller, 2009. "An Institutional Theory of Public Contracts: Regulatory Implications," Chapters, in: Claude Ménard & Michel Ghertman (ed.), Regulation, Deregulation, Reregulation, chapter 3, Edward Elgar Publishing.
    3. Daniel, Albalate & Germà, Bel & Albert, Gragera, 2019. "Politics, risk, and white elephants in infrastructure PPPs," Utilities Policy, Elsevier, vol. 58(C), pages 158-165.
    4. George J. Stigler, 1971. "The Theory of Economic Regulation," Bell Journal of Economics, The RAND Corporation, vol. 2(1), pages 3-21, Spring.
    5. Crocker, Keith J & Masten, Scott E, 1991. "Pretia ex Machina? Prices and Process in Long-Term Contracts," Journal of Law and Economics, University of Chicago Press, vol. 34(1), pages 69-99, April.
    6. 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.
    7. Roberto Urrunaga & José Luis Bonifaz, 2008. "Estimación de los beneficios indirectos," Chapters of Books, in: Roberto Urrunaga & José Luis Bonifaz (ed.), Beneficios económicos de la carretera Interoceánica, edition 1, volume 1, chapter 3, pages 47-118, Fondo Editorial, Universidad del Pacífico.
    8. Levy, Brian & Spiller, Pablo T, 1994. "The Institutional Foundations of Regulatory Commitment: A Comparative Analysis of Telecommunications Regulation," The Journal of Law, Economics, and Organization, Oxford University Press, vol. 10(2), pages 201-246, October.
    9. J. Luis Guasch & Jean-Jacques Laffont & Stéphane Straub, 2007. "Concessions of infrastructure in Latin America: Government-led renegotiation," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 22(7), pages 1267-1294.
    10. J. Guasch & Jean-Jacques Laffont & Stéphane Straub, 2006. "Renegotiation of Concession Contracts: A Theoretical Approach," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 29(1), pages 55-73, September.
    11. Joskow, Paul L, 1987. "Contract Duration and Relationship-Specific Investments: Empirical Evidence from Coal Markets," American Economic Review, American Economic Association, vol. 77(1), pages 168-185, March.
    12. Niesten, Eva & Jolink, Albert, 2012. "Regulating opportunism in the electricity industry and consumer interests," Utilities Policy, Elsevier, vol. 20(1), pages 38-45.
    13. Peltzman, Sam, 1976. "Toward a More General Theory of Regulation," Journal of Law and Economics, University of Chicago Press, vol. 19(2), pages 211-240, August.
    14. Gary S. Becker, 1983. "A Theory of Competition Among Pressure Groups for Political Influence," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 98(3), pages 371-400.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Nur, Suardi & Burton, Bruce & Bergmann, Ariel, 2023. "Evidence on optimal risk allocation models for Indonesian geothermal projects under PPP contracts," Utilities Policy, Elsevier, vol. 81(C).

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. 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.
    2. Athias, Laure & Saussier, Stéphane, 2018. "Are public private partnerships that rigid? And why? Evidence from price provisions in French toll road concession contracts," Transportation Research Part A: Policy and Practice, Elsevier, vol. 111(C), pages 174-186.
    3. de Brux, Julie, 2010. "The Dark and Bright Sides of Renegotiation: An Application to Transport Concession Contracts," Utilities Policy, Elsevier, vol. 18(2), pages 77-85, June.
    4. Bickenbach, Frank, 1999. "Regulierung und Wettbewerb im Bereich der Netzinfrastrukturen: Begründung, Regeln und Institutionen," Kiel Working Papers 910, Kiel Institute for the World Economy (IfW Kiel).
    5. Domingues, Sérgio & Sarmento, Joaquim Miranda, 2016. "Critical renegotiation triggers of European transport concessions," Transport Policy, Elsevier, vol. 48(C), pages 82-91.
    6. Stéphane Saussier & Carine Staropoli & Anne Yvrande-Billon, 2009. "Public–Private Agreements, Institutions, and Competition: When Economic Theory Meets Facts," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 35(1), pages 1-18, September.
    7. Anjana Susarla, 2012. "Contractual Flexibility, Rent Seeking, and Renegotiation Design: An Empirical Analysis of Information Technology Outsourcing Contracts," Management Science, INFORMS, vol. 58(7), pages 1388-1407, July.
    8. Jensen, Olivia & Wu, Xun, 2017. "The hybrid model for economic regulation of water utilities: Mission impossible?," Utilities Policy, Elsevier, vol. 48(C), pages 122-131.
    9. Çetin, Tamer & Yasin Eryigit, Kadir, 2013. "The economic effects of government regulation: Evidence from the New York taxicab market," Transport Policy, Elsevier, vol. 25(C), pages 169-177.
    10. Shapiro, Jesse M., 2016. "Special interests and the media: Theory and an application to climate change," Journal of Public Economics, Elsevier, vol. 144(C), pages 91-108.
    11. Yvrande-Billon, Anne & Menard, Claude, 2005. "Institutional constraints and organizational changes: the case of the British rail reform," Journal of Economic Behavior & Organization, Elsevier, vol. 56(4), pages 675-699, April.
    12. Spiller, Pablo T., 2013. "Transaction cost regulation," Journal of Economic Behavior & Organization, Elsevier, vol. 89(C), pages 232-242.
    13. Ovtchinnikov, Alexei V., 2013. "Merger waves following industry deregulation," Journal of Corporate Finance, Elsevier, vol. 21(C), pages 51-76.
    14. Hellman, Joel S. & Jones, Geraint & Kaufmann, Daniel, 2003. "Seize the state, seize the day: state capture and influence in transition economies," Journal of Comparative Economics, Elsevier, vol. 31(4), pages 751-773, December.
    15. Рубинштейн Александр Яковлевич, "undated". "Методологический Анализ Теории Опекаемых Благ: Научный Доклад [methodological analysis of the Theory of Patronized Goods. Research report]," Working papers a:pru175:ye:2014:1, Institute of Economics.
    16. Li, Kai & Long, Cheryl & Wan, Wei, 2019. "Public interest or regulatory capture: Theory and evidence from China’s airfare deregulation," Journal of Economic Behavior & Organization, Elsevier, vol. 161(C), pages 343-365.
    17. Rafael Di Tella & Robert MacCulloch, 2009. "Why Doesn't Capitalism Flow to Poor Countries?," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 40(1 (Spring), pages 285-332.
    18. Wallace E. Oates & Paul R. Portney & Wallace E. Oates & Paul R. Portney, 2004. "The Political Economy of Environmental Policy," Chapters, in: Environmental Policy and Fiscal Federalism, chapter 1, pages 3-30, Edward Elgar Publishing.
    19. Dimas de Castro e Silva Neto & Carlos Oliveira Cruz & Joaquim Miranda Sarmento, 2017. "Understanding the patterns of PPP renegotiations for infrastructure projects in Latin America," Competition and Regulation in Network Industries, , vol. 18(3-4), pages 271-296, September.
    20. Desmond (Ho-Fu) Lo & Kellilynn M. Frias & Mrinal Ghosh, 2012. "Price Formats for Branded Components in Industrial Markets: An Integration of Transaction Cost Economics and the Resource-Based View," Organization Science, INFORMS, vol. 23(5), pages 1282-1297, October.

    More about this item

    Keywords

    Opportunism; Stakeholders; Long-term contracts;
    All these keywords.

    JEL classification:

    • 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
    • L51 - Industrial Organization - - Regulation and Industrial Policy - - - Economics of Regulation
    • D72 - Microeconomics - - Analysis of Collective Decision-Making - - - Political Processes: Rent-seeking, Lobbying, Elections, Legislatures, and Voting Behavior

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eee:juipol:v:61:y:2019:i:c:s0957178719303315. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Catherine Liu (email available below). General contact details of provider: https://www.sciencedirect.com/journal/utilities-policy .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.