Adaptation in Long-term Exchange Relations: Evidence of the Complementarity and Ancillarity of Dimensions of Electricity Marketing Contracts
Williamson, Dean V. "The Economics of Adaptation and Long-term Relationships" (Elgar, 2019)
Posted: 20 May 2019
Date Written: March 2019
The research illuminates the role of financial structure (debt or equity financing) and contract renegotiation in enabling efficient adaptation over the course of long-term exchange. I provide evidence from a dataset of electricity marketing contracts about how electricity generators and electricity “marketers” use four instruments – contract duration, risk-sharing schemes, financial structure, and veto provisions – to channel investment incentives and to address both programmable and unprogrammable demands for contract adjustments. The empirical results demonstrate that veto provisions support long-term contracts by investing the governance of long-term relationships with flexibility. Further, the ancillarity of other instruments is consistent with efficient adaptation being an important economic problem.
Keywords: financial structure, adaptation, renegotiation, flexibility, contract duration, project finance
JEL Classification: D23, D86, L94, L95
Suggested Citation: Suggested Citation