A Versatile Prism: Assessing Procurement Law Through the Principal-Agent Model
Public Contract Law Journal, Vol. 40, No. 1, p. 63, Fall 2010
25 Pages Posted: 6 Mar 2011
Date Written: 2010
Over the past several decades, the federal procurement system in the United States has grown remarkably, and now totals over $500 billion annually.
Over that same period, the rules governing federal procurement have been buffeted by broad efforts at reform. At no point, however, have we ever had an overarching theory - a model or prism - through which to assess the procurement system or its reform. Agency theory provides one such theoretical model. Long established in economics and the other social sciences, the principal-agent model (agency theory) provides a model to explain successes (and failures) in organizational structures, and also to understand the procurement system and its rules. The theory builds upon the classic principal-agent model. A principal enlists an agent to carry out the principal’s goals, presumably because the agent enjoys some comparative advantage in performing the goals. Inevitably, however, the agent’s interests diverge from the principal’s; if the agent’s goals diverge sufficiently, the agent may be said to have a conflict of interest. This article employs agency theory to assess classic constructs of procurement law, such as Steven Schooner's desiderata, and argues that the theory can be used to solve future puzzles in procurement policy, and to predict where procurement policies are likely to fail - and to succeed.
Keywords: government contracts, public procurement, public policy, principal-agent theory, conflicts of interest
JEL Classification: D21, D23, H42, H57
Suggested Citation: Suggested Citation