Renegotiation and the Form of Efficient Contracts

Green, Douglas R.; Laffont,

doi:10.2307/20075860

Cited by 24 publications

(14 citation statements)

References 6 publications

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“…When can we have actual renegotiations? One way is to postulate that initial contracts are incomplete (Hart and Moore, 1988;Green and Laffont, 1992;Aghion et al, 1994;Segal and Whinston, 2002). The reasons invoked for these contractual incompletenesses are contractual transaction costs difficult to pin down, bounded rationality of players, which are rarely explicitly modeled, or some imperfections of the judicial system, which are assumed in a rather ad hoc way.…”

Section: Related Theoretical Literaturementioning

confidence: 99%

Renegotiation of concession contracts in Latin America

Guasch

Laffont

Straub

2008

International Journal of Industrial Organization

285

131

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High rates of contract renegotiation have raised serious questions about the viability of the concession model to attract private participation in infrastructure in developing countries. After extending in reduced form a standard regulation model, in which renegotiation occurs due to the imperfect enforcement of concession contracts, we use a unique data set of 307 concessions awarded in Latin America from 1989 to 2000, covering the sectors of transport and water, to analyze the determinants of this high incidence of renegotiations of infrastructure contracts. We look in details at the impact, on the probability of renegotiation of a concession, of regulatory institutions, institutional features, economic shocks and of the characteristics of the concession contracts themselves. We then derive some policy implications of our work.

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Section: Related Theoretical Literaturementioning

confidence: 99%

Renegotiation of concession contracts in Latin America

Guasch

Laffont

Straub

2008

International Journal of Industrial Organization

285

131

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“…See Fudenberg-Tirole (1988) for a study of renegotiation in a moral-hazard framework, and Green andLaffont (1987) (1988) for the case of symmetric but nonverifiable information. These papers as well as the present work use a principal agent framework (i.e., concern renegotiation in contract theory).…”

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confidence: 99%

Adverse Selection and Renegotiation in Procurement

Laffont

Tirole

1990

The Review of Economic Studies

263

138

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As was shown by Dewatripont, optimal long-tenn contracts are generally not sequentially optimal. The parties ex-post renegotiate them to their mutual advantage. This paper fully characterizes the equilibrium of a simple two-period procurement situation and studies the extent to which renegotiation reduces ex-ante welfare: i) A central re sult is that, like in the non-commitment case, the second period allocation is optimal for the principal conditionally on his posterior beliefs about the agent. ii) The first period allocation exhibits an increasing amount of pooling when the discount factor grows. iii) With a continuum of types, it is never optimal to induce full separation.The paper also analyzes whether renegotiated long-tenn contracts yield outcomes resembling those under either unrenegotiated long-tenn contracts or a sequence of short-tenn contracts and it links the analysis with the multiple unit durable good monopoly problem.

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“…In reality, the inefficiencies associated with contractual incompleteness are recognised by different schools of economic thought, including transaction cost economists (e.g. Williamson as cited above) and agency/ incentive theorists such as Laffont (1987, 1992. Nevertheless, they have not considered privatisation as a unique solution to contractual incompleteness.…”

Section: The Theory Of Incomplete Contracts and Its Verdict On Publicmentioning

confidence: 99%

A critical assessment of the incomplete contracts theory for private participation in public services: the case of the water sector in Ghana

Dagdeviren¹,

Robertson²

2013

Cambridge Journal of Economics

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This paper provides a critical analysis of the recent developments in the incomplete contracts theory and its conclusions for privatisation of public services. Drawing upon a case study of management contract for urban water services in Ghana and highlighting the flaws in the theory, the paper argues that contractual incompleteness does not provide a uniform guidance on efficient forms of ownership. We argue that methodological individualism utilised in the theory is particularly ineffective for its application to public services where direct or indirect contractual role of the state cannot be eliminated. The sterility of the theory with respect to political, institutional and distributional context of public service delivery is identified as an important weakness.

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Renegotiation and the Form of Efficient Contracts

Cited by 24 publications

References 6 publications

Renegotiation of concession contracts in Latin America

Renegotiation of concession contracts in Latin America

Adverse Selection and Renegotiation in Procurement

A critical assessment of the incomplete contracts theory for private participation in public services: the case of the water sector in Ghana

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