Third-Party Opportunism and the Nature of Public Contracts

Marian W. Moszoro, Pablo T. Spiller

NBER Working Paper No. 18636
Issued in December 2012
NBER Program(s):   LE

The lack of flexibility in public procurement design and implementation reflects public agents' political risk adaptation to limit hazards from opportunistic third parties – political opponents, competitors, interest groups – while externalizing the associated adaptation costs to the public at large. Reduced flexibility limits the likelihood of opportunistic challenge lowering third parties' expected gains and increasing litigation costs. We provide a comprehensible theoretical framework with empirically testable predictions.

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Acknowledgments

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