Short-term or long-term contracts? - A rent-seeking perspective

Abstract

In this paper, firms engage in rent seeking in order to be assigned a governmental contract. We analyze how a change in the contract length affects the firms' rent-seeking behavior. A longer contract leads to more rent seeking at a contract assignment stage, as the firms value the contract higher. On the other hand, the contract has to be assigned less often, which of course leads to less rent seeking. Finally, a longer contract makes a possible cooperation between the firms solving the rent-seeking problem more difficult to sustain