Corruption in PPPs, Incentives and Contract Incompleteness

Elisabetta Iossa and David Martimort

No 317, CEIS Research Paper from Tor Vergata University, CEIS

Abstract: In a public procurement setting, we discuss the desirability of completing contracts with state-contingent clauses providing for monetary compensations to the contractor when revenue shocks occur. Realized shocks are private information of the contractor and this creates agency costs of delegated service provision. Verifying the contractor’s messages on the shocks entails contracting costs that make incomplete contracts attractive, despite their higher agency costs. A public official (supervisor) has private information on contracting costs and chooses the degree of contractual incompleteness on behalf of an upper-tier public authority. As the public official may be biased towards the contractor, delegating the contractual choice to that lower-tier may result in incomplete contracts being chosen too often. Empirical predictions on the use of incomplete contracts and policy implications on the benefits of standardized contract terms are discussed.

Keywords: Corruption; Incomplete Contracts; Moral Hazard; Principal-Agent-Supervisor Model; Public-Private Partnerships; Risk Allocation (search for similar items in EconPapers)
JEL-codes: D23 D82 K42 L33 (search for similar items in EconPapers)
Pages: 43 pages
Date: 2014-07-18, Revised 2014-07-18
New Economics Papers: this item is included in nep-cta, nep-hrm, nep-law and nep-mic
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (6)

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Related works:
Journal Article: Corruption in PPPs, incentives and contract incompleteness (2016)
Working Paper: Corruption in PPPs, incentives and contract incompleteness (2016)
Working Paper: Corruption in PPPs, incentives and contract incompleteness (2016)
Working Paper: Corruption in PPPs, Incentives and Contract Incompleteness (2015)
Working Paper: Corruption in PPPs, Incentives and Contract Incompleteness (2014)
Working Paper: Corruption in PPPs, Incentives and Contract Incompleteness (2014)
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