Contractual Rigidity and Political Contestability: Revisiting Public Contract Renegotiations

Jean Beuve, Marian Moszoro and Pablo Spiller

No 28491, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: We present a model of public procurement in which both contractual flexibility and political tolerance for contractual deviations determine renegotiations. In the model, contractual flexibility allows for adaptation without formal renegotiation while political tolerance for deviations decreases with political competition. We then compare renegotiation rates of procurement contracts in which the procurer is either a public administration or a private corporation. We find robust evidence consistent with the model predictions: public-to-private contracts are renegotiated more often than comparable private-to-private contracts, and that this pattern is more salient in politically contestable jurisdictions. The frequent renegotiation of public contracts results from their inherent rigidity and provides a relational quality of adaptability to contingencies in politically contestable environments.

JEL-codes: D23 D72 D73 D78 H57 (search for similar items in EconPapers)
Date: 2021-02
New Economics Papers: this item is included in nep-cta and nep-reg
Note: IO LE PE POL
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