Opportunism and Third-Party Influence on Long-Term Public Contracts

The present paper refers to the influence of interest groups and stakeholders on government and concessionaire contractual behavior in long-term public contracts. In particular, we show how government political commitments with interest groups represent a ‘reputational investment’, which reduces the incentives to enforce the contract and increases the willingness to accept renegotiation proposals. This situation, particularly in the case of “high profile” or “politically sensitive” projects, when observed by the private concessionaire, can be exploited to capture additional quasi-rents from the exchange relationship. Using a simple model and a case study of the South Interoceanic Road Project in Peru, we show how interactions of the government with influential stakeholders, in the context of weak institutions, can create favorable conditions for private opportunistic behavior.

Keywords

Asociación Público-Privada, Concession, Opportunism, Stakeholder

JEL Classification

D72, L14, L33, L51