Deciding who’s in charge

Abstract

This research derives testable hypotheses from property rights theory regarding the allocation of decision authority in contracts. Government-based professional service contracts provide the context for study. Using content analysis we code 361 contracts to identify the main contributors of knowledge assets to the work product along with the relevant decision authority, which is reflected in provisions that stipulate who must accomplish the work and how it must be done. Results of various regression models show that the distribution of knowledge assets does influence the assignment of decision authority, specifically: (1) a higher fraction of decision rights is allocated to government when government is also identified as a source of expertise; (2) authority is less centralized when both parties contribute knowledge inputs; (3) bargaining power (lobbying) leads to a lower fraction of decision rights allocated to government.