The cost of contract renegotiation: Evidence from the local public sector

Philippe Gagnepain (), Marc Ivaldi and David Martimort
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Philippe Gagnepain: CES - Centre d'économie de la Sorbonne - UP1 - Université Paris 1 Panthéon-Sorbonne - CNRS - Centre National de la Recherche Scientifique, PSE - Paris School of Economics - UP1 - Université Paris 1 Panthéon-Sorbonne - ENS-PSL - École normale supérieure - Paris - PSL - Université Paris Sciences et Lettres - EHESS - École des hautes études en sciences sociales - ENPC - École nationale des ponts et chaussées - CNRS - Centre National de la Recherche Scientifique - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement

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Abstract: Economic theory claims that contracts renegotiation prevents from reaching the informationally constrained efficient solution that could have been obtained under full commitment. Assessing the cost of renegotiation compared to the full commitment scenario still remains an open issue from an empirical viewpoint. To address this question, we fit a structural principal-agent model with renegotiation on a set of contracts for urban transport services. The model captures two important features of the industry. First, only two types of contracts are used in practice (fixed-price and cost-plus). Second, subsidies are greater when a cost-plus contract was signed earlier on than following a fixed-price contract. We then compare a scenario with renegotiation and a hypothetical situation with full commitment. We conclude that the welfare gains from improving commitment would be significant but would accrue mostly to operators.

Date: 2013
New Economics Papers: this item is included in nep-cta, nep-tre and nep-ure
Note: View the original document on HAL open archive server: https://hal.science/hal-00710639v1
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Citations: View citations in EconPapers (41)

Published in American Economic Review, 2013, 103 (6), pp.2352-2383. ⟨10.1257/aer.103.6.2352⟩

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Related works:
Journal Article: The Cost of Contract Renegotiation: Evidence from the Local Public Sector (2013)
Working Paper: The cost of contract renegotiation: Evidence from the local public sector (2013)
Working Paper: The cost of contract renegotiation: Evidence from the local public sector (2013)
Working Paper: The cost of contract renegotiation: Evidence from the local public sector (2010)
Working Paper: The Cost of Contract Renegotiation: Evidence from the Local Public Sector (2010)
Working Paper: The Cost of Contract Renegotiation: Evidence from the Local Public Sector (2010)
Working Paper: The Cost of contract renegotiation: evidence from the local public sector (2009)
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Persistent link: https://EconPapers.repec.org/RePEc:hal:cesptp:hal-00710639

DOI: 10.1257/aer.103.6.2352

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