Abstract

Economic theory claims that contracts renegotiation prevents from reaching the informationally constrained efficient solution that could have been obtained under full commitment. Assessing the cost of renegotiation compared to the full commitment scenario still remains an open issue from an empirical viewpoint. To address this question, 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. First, only two types of contracts are used in practice (fixed-price and cost-plus). Second, subsidies are greater when a cost-plus contract was signed earlier on than following a fixed-price contract. We then compare a scenario with renegotiation and a hypothetical situation with full commitment. We conclude that the welfare gains from improving commitment would be significant but would accrue mostly to operators.

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The different versions of the original document can be found in:

http://www.aeaweb.org/aer/data/oct2013/20101108_data.zip,
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https://papers.ssrn.com/sol3/papers.cfm?abstract_id=1711055,
https://www.researchgate.net/profile/Philippe_Gagnepain/publication/40533606_The_Cost_of_Contract_Renegotiation_Evidence_from_the_Local_Public_Sector/links/09e4150ebe5b4271d4000000.pdf,
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https://academic.microsoft.com/#/detail/2036873658


DOIS: 10.1257/aer.103.6.2352 10.1257/aer.103.6.2352〉

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Published on 01/01/2010

Volume 2010, 2010
DOI: 10.1257/aer.103.6.2352
Licence: Other

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