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

In "The Manufacturing of Markets: Legal, Political and Economic Dynamics," edited by Eric Brousseau and Jean-Michel Glachant. Cambridge University Press (ISBN 978-1-107-05371-7), 2014.

33 Pages Posted: 26 Jul 2011 Last revised: 2 Feb 2014

Pablo T. Spiller

University of California, Berkeley - Business & Public Policy Group

Marian Moszoro

George Mason University - Department of Economics; George Mason University - Interdisciplinary Center for Economic Science (ICES); Cornell University - CPIP

Date Written: 2014

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.

Keywords: Transaction Costs, Procurement, Public Sector Accounting and Audits, Political Processes, Bureaucracy, Policy Making, Political Economy, Opportunism

JEL Classification: D23, D72, D73, D78, H57, H83, P48

Suggested Citation

Spiller, Pablo T. and Moszoro, Marian, Third-Party Opportunism and the Theory of Public Contracts: Operationalization and Applications (2014). In "The Manufacturing of Markets: Legal, Political and Economic Dynamics," edited by Eric Brousseau and Jean-Michel Glachant. Cambridge University Press (ISBN 978-1-107-05371-7), 2014. . Available at SSRN: https://ssrn.com/abstract=1894821 or http://dx.doi.org/10.2139/ssrn.1894821

Pablo T. Spiller

University of California, Berkeley - Business & Public Policy Group ( email )

545 Student Services Building
Berkeley, CA 94720
United States
510-642-1502 (Phone)
510-642-2826 (Fax)

Marian W. Moszoro (Contact Author)

George Mason University - Department of Economics ( email )

4400 University Drive
Fairfax, VA 22030
United States

HOME PAGE: http://economics.gmu.edu/people/mmoszoro

George Mason University - Interdisciplinary Center for Economic Science (ICES) ( email )

400P Truland Building
George Mason University
Fairfax, VA 22030
United States

Cornell University - CPIP ( email )

Cornell Program in Infrastructure Policy
Ithaca, NY 14853
United States

HOME PAGE: http://www.human.cornell.edu/pam/cpip/people.cfm

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