Rigidity of Public Contracts
36 Pages Posted: 5 Jul 2013 Last revised: 4 Dec 2014
Date Written: July 14, 2014
We apply algorithmic data reading and textual analysis to compare the features of contracts in regulated industries subject to public scrutiny (which we call "public contracts") with relational private contracts. We show that public contracts are lengthier, have more rule-based rigid clauses, and their renegotiation is formalized in amendments. We also find that contract length and the frequency of rigidity clauses increases in political contestability. We sustain that the higher rigidity of public contracts is a political risk adaptation strategy by public agents attempting to lower third-party opportunistic challenges.
Keywords: Transaction Costs, Public Contracting and Procurement, Political Economy, Regulated Industries
JEL Classification: D23, D73, D78, H57, K23
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