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

Moszoro, Marian W. and Spiller, Pablo T. (2014): Third-Party Opportunism and the Theory of Public Contracts: Operationalization and Applications. Published in: The Manufacturing of Markets: Legal, Political and Economic Dynamics, edited by Eric Brousseau and Jean-Michel Glachant. Cambridge University Press (2014): pp. 229-252.

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.

• Item Type: MPRA Paper
• Language: English
• Keywords: Transaction Costs, Procurement, Public Sector Accounting and Audits, Political Processes, Bureaucracy, Policy Making, Political Economy, Opportunism
• Subjects: D - Microeconomics > D2 - Production and Organizations > D23 - Organizational Behavior ; Transaction Costs ; Property Rights; D - Microeconomics > D7 - Analysis of Collective Decision-Making > D72 - Political Processes: Rent-Seeking, Lobbying, Elections, Legislatures, and Voting Behavior; D - Microeconomics > D7 - Analysis of Collective Decision-Making > D73 - Bureaucracy ; Administrative Processes in Public Organizations ; Corruption; D - Microeconomics > D7 - Analysis of Collective Decision-Making > D78 - Positive Analysis of Policy Formulation and Implementation; D - Microeconomics > D8 - Information, Knowledge, and Uncertainty > D82 - Asymmetric and Private Information ; Mechanism Design; H - Public Economics > H5 - National Government Expenditures and Related Policies > H57 - Procurement; P - Economic Systems > P4 - Other Economic Systems > P48 - Political Economy ; Legal Institutions ; Property Rights ; Natural Resources ; Energy ; Environment ; Regional Studies

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