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

Gagnepain, Philippe, Ivaldi, Marc and Martimort, David (2013) The Cost of Contract Renegotiation: Evidence from the Local Public Sector. American Economic Review, 103 (6). pp. 2352-2383.

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Official URL: http://tse-fr.eu/pub/27951

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.

Item Type: Article
Language: English
Date: October 2013
Refereed: Yes
JEL codes: D86 - Economics of Contract - Theory
L51 - Economics of Regulation
Subjects: B- ECONOMIE ET FINANCE
Divisions: TSE-R (Toulouse)
Site: UT1
Date Deposited: 09 Jul 2014 17:42
Last Modified: 07 Mar 2018 13:22
OAI ID: oai:tse-fr.eu:27951
URI: http://publications.ut-capitole.fr/id/eprint/15851

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