TY  - JOUR
AU  - Spiller,Pablo T.
TI  - An Institutional Theory of Public Contracts: Regulatory Implications
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 14152
PY  - 2008
Y2  - August 2008
UR  - http://www.nber.org/papers/w14152
L1  - http://www.nber.org/papers/w14152.pdf
N1  - Author contact info:
Pablo T. Spiller
University of California
Walter A. Haas School of Business
Faculty Bldg. 593
Berkeley, CA 94720
Tel: 510/642-1502
Fax: 510/642-2826
E-Mail: spiller@haas.berkeley.edu
AB  - The fundamental feature of private contracting is its relational nature.  When faced with unforeseen or unexpected circumstances, private parties, as long as the relation remains worthwhile, adjust their required performance without the need for costly renegotiation or formal recontracting.  Public contracting, on the other hand, seems to be characterized by formalized, standardized, bureaucratic, rigid procedures.  Common wisdom sees public contracts as generally more inflexible, requiring more frequent formal renegotiation, having a higher tendency to litigate, and providing weaker incentives.  In sum, public contracts are perceived to be less "efficient." In this paper I develop a theory of public contracting that accommodates these stark differences between private and public contracting.  The thrust of the paper is that these differences arise directly because of the different hazards present in public and purely private contracts, which directly impact the nature of the resulting contractual forms.  A fundamental corollary of this result is that the perceived inefficiency of public or governmental contracting is simply the result of contractual adaptation to different inherent hazards, and as such is not directly remediable.  Finally, I apply the main insights from the general framework developed here to understand the characteristics of concession contracts.
ER  -