Rigidity of Public Contracts
Journal of Empirical Legal Studies, Vol. 13, Nro. 3, pp. 396-427
42 Pages Posted: 22 Jul 2014 Last revised: 21 Jan 2017
Date Written: July 21, 2016
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 contracts between non-governmental entities. We show that public contracts are lengthier and have more rule-based rigid clauses; in addition, their renegotiation is formalized in amendments. We also find that contract length and the frequency of rigidity clauses increases in political contestability and closer to upcoming elections. We maintain that the higher rigidity of public contracts is a political risk adaptation strategy carried out by public agents to lower the likelihood of success of politically motivated challenges from opportunistic third parties.
Keywords: Transaction Costs, Public Contracting and Procurement, Political Economy, Regulated Industries
JEL Classification: D23, D73, D78, H57, K23
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