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Contractual Rigidity and Political Contestability: Revisiting Public Contract Renegotiations

Author

Listed:
  • Jean Beuve
  • Marian W. Moszoro
  • Pablo T. Spiller

Abstract

We present a model of public procurement in which both contractual flexibility and political tolerance for contractual deviations determine renegotiations. In the model, contractual flexibility allows for adaptation without formal renegotiation while political tolerance for deviations decreases with political competition. We then compare renegotiation rates of procurement contracts in which the procurer is either a public administration or a private corporation. We find robust evidence consistent with the model predictions: public-to-private contracts are renegotiated more often than comparable private-to-private contracts, and that this pattern is more salient in politically contestable jurisdictions. The frequent renegotiation of public contracts results from their inherent rigidity and provides a relational quality of adaptability to contingencies in politically contestable environments.

Suggested Citation

  • Jean Beuve & Marian W. Moszoro & Pablo T. Spiller, 2021. "Contractual Rigidity and Political Contestability: Revisiting Public Contract Renegotiations," NBER Working Papers 28491, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberwo:28491
    Note: IO LE PE POL
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    Cited by:

    1. Jean Beuve & Stéphane Saussier, 2021. "Renegotiations and Renewals of Public Contracts," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 59(3), pages 461-482, November.

    More about this item

    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
    • H57 - Public Economics - - National Government Expenditures and Related Policies - - - Procurement

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