Tools and approaches in public contracting research

What makes contracting in public organizations different from contracting in private organizations? This essay explores advances in research at the intersection of contract theory and behavioral political economics. The main challenges consist of identifying and measuring the trade-offs that arise due to the interaction of agents under public oversight and political competition. It highlights theoretical models that address accountability and public managers’ discretionary contractual choices, as well as empirical tools for causal inference in public-private contracting

Risk pricing inefficiency in public-private partnerships

There is a drive towards delivering and operating public infrastructure through public-private partnership (PPP) rather than traditional public procurement. The assessment of the value for money achieved by the two alternative approaches rests in the cost of financing and their efficiency in delivery and operation. This paper focuses on the cost of financing, in particular the cost associated with transferring risk from the public to the private sphere. If capital markets were efficient and complete, the cost of public (government) and private financing should be the same, with the relative delivery and operational efficiency remaining as the primary determinant of value-for-money. Evidence suggests, however, that the risk transfer to a PPP entails an inefficient risk pricing premium which goes beyond the direct cost of financing. We argue that a high price for PPPs results from large risk transfers, risk treatment within the private sector, and uncertainty around the past and future performance of public-private consortia. The corollary is that the efficiency gains from a PPP must be much higher than commonly expected to deliver greater value for the money than under a traditional approach

Nigeria---Additional Spending Toward Sustainable Development Goals

Making progress in the SDGs requires substantial additional resources. Concomitant with the reform priorities identified by the United Nations, World Bank, European Union, and other international development institutions, the mission estimates additional spending of 18 percentage points of GDP by 2030—a level higher than the average low-income and developing countries

Rigidity of Public Contracts

We apply algorithmic data reading and textual analysis to compare the features of contracts in regulated industries subject to public scrutiny (which we call "public contracts") with contracts between non-governmental entities. We show that public contracts are lengthier and have more rule-based rigid clauses; in addition, their renegotiation is formalized in amendments. We also find that contract length and the frequency of rigidity clauses increases in political contestability and closer to upcoming elections. We maintain that the higher rigidity of public contracts is a political risk adaptation strategy carried out by public agents to lower the likelihood of success of politically motivated challenges from opportunistic third parties

What Drives Private Participation in Infrastructure Developing Countries?

This chapter reviews the empirical literature on the determinants of private participation in infrastructure investments and presents a more detailed discussion of the political, institutional, and governance determinants. It also identifies areas in which additional efforts are required if the private sector were to play a larger role in financing infrastructure development in emerging markets and developing economies

Risk pricing inefficiency in public-private partnerships

There is a drive towards delivering and operating public infrastructure through public-private partnership (PPP) rather than traditional public procurement. The assessment of the value for money achieved by the two alternative approaches rests in the cost of financing and their efficiency in delivery and operation. This paper focuses on the cost of financing, in particular the cost associated with transferring risk from the public to the private sphere. If capital markets were efficient and complete, the cost of public (government) and private financing should be the same, with the relative delivery and operational efficiency remaining as the primary determinant of value-for-money. Evidence suggests, however, that the risk transfer to a PPP entails an inefficient risk pricing premium which goes beyond the direct cost of financing. We argue that a high price for PPPs results from large risk transfers, risk treatment within the private sector, and uncertainty around the past and future performance of public-private consortia. The corollary is that the efficiency gains from a PPP must be much higher than commonly expected to deliver greater value for the money than under a traditional approach

Third-Party Opportunism and the (In)Efficiency of Public Contracts

Public contracts feature higher specificity and rigidity than analogous pure private contracts. The lack of flexibility in ex ante design and ex post implementation translates into contract inefficiencies and higher prices. However, specificity and rigidity are an efficient political risk adaptation by which public agents endogenize the likelihood of contract protests and limit political hazards from opportunistic third parties— political opponents, competitors, interest groups—externalizing the associated costs to the public at large. We present a comprehensible and testable theory of third-party opportunism and its effects on public contracts. We show that in the presence of opportunistic third parties, there exists a Bayesian Nash equilibrium in which public contracts are more specific and rigid, and thus more expensive in their design, implementation, and control than the theoretical first-best in a non-opportunistic setup. Furthermore, we show conditions under which third-party scrutiny increases contracting efficiency. We use case examples to illustrate the theory in practical settings and derive empirical implications. Finally, we extend the model to embrace governmenta

Risk pricing inefficiency in public-private partnerships

There is a drive towards delivering and operating public infrastructure through public-private partnership (PPP) rather than traditional public procurement. The assessment of the value for money achieved by the two alternative approaches rests in the cost of financing and their efficiency in delivery and operation. This paper focuses on the cost of financing, in particular the cost associated with transferring risk from the public to the private sphere. If capital markets were efficient and complete, the cost of public (government) and private financing should be the same, with the relative delivery and operational efficiency remaining as the primary determinant of value-for-money. Evidence suggests, however, that the risk transfer to a PPP entails an inefficient risk pricing premium which goes beyond the direct cost of financing. We argue that a high price for PPPs results from large risk transfers, risk treatment within the private sector, and uncertainty around the past and future performance of public-private consortia. The corollary is that the efficiency gains from a PPP must be much higher than commonly expected to deliver greater value for the money than under a traditional approach

Third-Party Opportunism and the Theory of Public Contracts: Operationalization and Applications

Public contracts seem to be "expensive" and "inefficient" compared to pure private contracts. Higher prices and inefficiencies in the implementation of public contracts result from their specificity and rigidity, which is how public agents limit hazards from third-party opportunism. We present a comprehensible and testable theory of third-party opportunism and its effects on public contracts. We show that, in the presence of third-party opportunism, there exists an equilibrium in which public contracts are specific and rigid, and thus more expensive in their design, implementation, and control than the theoretical first-best in a non-opportunistic world. We use case examples to extend the theory into practical settings and derive empirical implications