The Role of Repeated Interactions, Self-Enforcing Agreements and Relational [Sub]Contracting: Evidence from California Highway Procurement Auctions

Ricard Gil and Justin Marion

University of California Transportation Center, Working Papers from University of California Transportation Center

Abstract: We examine the impact of relationships between contractors and subcontractors on firm pricing and entry decisions in the California highway procurement market using data from auctions conducted by the California Department of Transportation. Relationships in this market are valuable if they mitigate potential hold-up problems and incentives for ex post renegotiation due to contractual incompleteness. An important characteristic of informal contracts are that they must be self-enforcing, so that the value of relationships between firms and suppliers depend on the extent of possibilities for future interaction. We construct measures of the stock of contractors’ prior interactions with relevant subcontractors and find that a larger stock of relationships leads to lower bids and a greater likelihood of entry. Importantly, this relationship does not hold in periods of time and areas with little future contract volume, suggesting that the self-enforcement mechanism is crucial in providing value for informal contracts.

Keywords: Social; and; Behavioral; Sciences (search for similar items in EconPapers)
Date: 2009-01-01
References: Add references at CitEc
Citations: View citations in EconPapers (7)

Downloads: (external link)
https://www.escholarship.org/uc/item/7r14d10x.pdf;origin=repeccitec (application/pdf)

Related works:
Working Paper: The Role of Repeated Interactions, Self-Enforcing Agreements and Relational [Sub]Contracting: Evidence from California Highway Procurement Auctions (2009)
Working Paper: The Role of Repeated Interactions, Self-Enforcing Agreements and Relational [Sub]Contracting: Evidence from California Highway Procurement Auctions (2009)
Working Paper: The Role of Repeated Interactions, Self-Enforcing Agreements and Relational [Sub]Contracting: Evidence from California Highway Procurement Auctions (2009)
Working Paper: The Role of Repeated Interactions, Self-Enforcing Agreements and Relational [Sub]Contracting: Evidence from California Highway Procurement Auctions (2009)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:cdl:uctcwp:qt7r14d10x

Access Statistics for this paper

More papers in University of California Transportation Center, Working Papers from University of California Transportation Center Contact information at EDIRC.
Bibliographic data for series maintained by Lisa Schiff ().