Balancing Hazards in the Design of Local Franchise Contracts

Relying on transaction cost logic, the authors consider the likelihood that contract duration and monitoring are jointly determined in 241 cable franchise renewal agreements. Results indicate that municipalities award longer contracts to larger cable companies with more asset-specific investments, but also more actively monitor these contracts. In addition, performance problems in the initial period lead municipalities to choose more active monitoring going forward. The findings have implications for understanding the way contract options are combined to address various hazards but also for contracting officers who want to make reasoned decisions regarding the use of incentives, controls, rewards, and sanctions.