Political Contestability and Public Contract Rigidity: An Analysis of Procurement Contracts

Abstract

Are public contracts less adaptable than private contracts? Using a comprehensive set of contracts for a standard product, we compare procurement contracts in which the procurer is either a public administration or a private corporation. We find that public-to-private contracts feature more rigidity clauses than private-to-private contracts and that the use of rigidity clauses in public contracts rises when political risks are more salient. We argue that a significant part of the increased rigidity of public contracts is a contractual adaptation to limit political hazards from political opponents and interested third parties.

Keywords: Procurement, Political Contestability, Contractual Rigidity

JEL Classification: D23, D72, D73, D78, H57