The Effects of Competition Based Public Policy on Contractual Arrangements

There is widespread agreement on the value of competition in the delivery of public goods and services. In some markets competition is naturally limited and thus various mechanisms have been utilized to bolster competition, including franchise bidding and auctions. In this article, we examine how state legislative policy aimed at increasing market competition affects the structure of franchise renewal agreements. We analyze 270 franchise renewal agreements from New Jersey between 1998 and 2008. We rely on property rights theory to guide our analysis and claim that modifications in property rights, as evidenced in the renewal agreement, will more likely occur in cases where competition is credible and imminent, when there is considerable political pressure for change, and when cities are well informed. Using a difference-in-difference estimator, we find that franchise renewal agreements awarded after the state policy is enacted and in cities where more competition is imminent have more provisions favorable to the city written into the agreement