Contracting with Governments

In this paper we review contracting issues raised by a government’s decision to contract out activities linked to public services, as well as highlighting potential future research avenues. We first review the different kinds of contracting arrangements and public private partnerships used by government to contract out their activities. In Section 1, we highlight the difficulties linked to the specificities of the arrangements between the government, considered a competent and benevolent dictator, due to complex information and commitment issues. We focus on the different sources of contractual failures resulting from contractual incompleteness and from imperfect competition among the potential private providers of public services. We then focus on the specificities of the relationship between the private and public parties that might be non-benevolent and therefore submitted to specific constraints to control potential disfunctioning like corruption, (see Section 2). Lastly we consider the “government” no longer as an homogeneous entity, but as a complex, multi-purpose organization submitting third parties to specific hazards (Section 3). Suggestions for further research follow in the conclusion.