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Economia e Politica Industriale

, Volume 45, Issue 1, pp 5–16 | Cite as

Implications of Third Parties for Contract Design

  • Marian W. Moszoro
  • Pablo T. Spiller
Article

Abstract

We analyze the implications of plausible third-party challenges to the legitimacy of a transaction for contract design. To the extent that such challenges impose reputation and transaction costs, the scrutinized agent has an incentive to choose contractual procedures that make challenges less likely to succeed at court, thereby discouraging the filing of challenges in the first place. The added contractual proceduralization, in turn, create adaptation costs for both the agent and the contractor which are externalized to the principals, making the transaction allegedly inefficient. This setup is of particular relevance in public procurement, where interested third parties—political opponents, excluded bidders, and watchdogs—are always present due to the nature of the transaction.

Keywords

Transaction costs Bureaucracy Positive policy analysis Procurement governance 

JEL Classification

D23 D73 D78 G34 H57 

Notes

Compliance with Ethical Standards

Conflict of interest

On behalf of all authors, the corresponding author states that there is no conflict of interest.

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Copyright information

© Associazione Amici di Economia e Politica Industriale 2017

Authors and Affiliations

  1. 1.Department of Economics and Interdisciplinary Center for Economic ScienceGeorge Mason UniversityArlingtonUSA
  2. 2.Haas School of BusinessUniversity of CaliforniaBerkeleyUSA
  3. 3.National Bureau of Economic ResearchCambridgeUSA

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