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Journal of Regulatory Economics

, Volume 27, Issue 1, pp 5–24 | Cite as

Incentive Contracts for Infrastructure, Litigation and Weak Institutions

  • Alfredo Garcia
  • James D. Reitzes
  • Juan Benavides
Article

Abstract

In this paper we revisit incentive contract design in a simple setting, after developing a model that captures the fact that in weak institutional settings the procurement of large scale public works through contracts with strong incentives for private firms, may result in excessive litigation over contract terms. This result is possible because we assume that parties in litigation can influence (by purchasing better or more legal services) the observable merits of their case. In weak institutional settings, governments have an inherent disadvantage in these litigation contests. We show that a commitment to a prespecified level of litigation effort by the government, together with weaker incentive contracts, is a more efficient procurement mechanism.

Keywords

incentive contracts infrastructure provision litigation asymmetric information 

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References

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Copyright information

© Springer Science+Business Media, Inc. 2005

Authors and Affiliations

  • Alfredo Garcia
    • 1
  • James D. Reitzes
    • 2
  • Juan Benavides
    • 3
  1. 1.University of VirginiaCharlottesville
  2. 2.The Brattle GroupWashington
  3. 3.Inter-American Development BankWashington

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