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The Cost of Contract Renegotiation: Evidence from the Local Public Sector

Philippe Gagnepain (), Marc Ivaldi () and David Martimort ()

American Economic Review, 2013, vol. 103, issue 6, 2352-83

Abstract: Contract theory claims that renegotiation prevents attainment of the efficient solution that could be obtained under full commitment. Assessing the cost of renegotiation remains an open issue from an empirical viewpoint. 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 as only two types of contracts are used (fixed price and cost-plus) and subsidies are greater following a cost-plus contract than following a fixed price one. We conclude that the welfare gains from improving commitment would be significant but would accrue mostly to operators.

JEL-codes: D82 D86 L51 L92 R42 R48 (search for similar items in EconPapers)
Date: 2013
Note: DOI: 10.1257/aer.103.6.2352
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Related works:
Working Paper: The cost of contract renegotiation: Evidence from the local public sector (2013) Downloads
Working Paper: The cost of contract renegotiation: Evidence from the local public sector (2010) Downloads
Working Paper: The Cost of Contract Renegotiation: Evidence from the Local Public Sector (2010) Downloads
Working Paper: The Cost of Contract Renegotiation: Evidence from the Local Public Sector (2010) Downloads
Working Paper: The Cost of contract renegotiation: evidence from the local public sector (2009) Downloads
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