Abstract
ABSTRACT Context: infrastructure projects assume the use of intensive capital and the participation of several actors, where the institutional environment influences their respective contractual arrangements. A financial instrument for project governance is surety bond (SB), whose purpose is to ensure compliance with the contracted object. However, research involving SB in the context of emerging countries such as Brazil is still incipient. Objective: this study aims to understand the use of SB in Brazil and proposes a conceptual model for analyzing transactions. It contributes to the literature by investigating the relationship between the actors and transactions involved in SB using the transaction costs theory and agency theory perspectives. Methods: this study adopts a qualitative methodology using primary data collected with 10 in-depth semi-structured interviews with market professionals with substantial experience in SB. In addition, it uses secondary data based on debate and a specific lecture on the topic involving the reality and the use of SB. Results: the findings indicate that the agency problem and the high transaction costs in Brazil prevent the development of this risk coverage market, giving rise to targeted public policies. Conclusion: the proposed conceptual model reflects the various specific transactions in the use of SB, the underlying phenomena and the validation of propositions related to market failures, and the institutional environment’s influence.
Highlights
Surety bond (SB) is a type of insurance that underwrites the fulfillment of obligations assumed by the principal party to the obligee party, based on the conditions of the policy issued
The results showed that agency problems and high transaction costs in Brazil prevent further expansion of the SB market, implying the need to elaborate specific public policies
We propose a conceptual model (Figure 2) that identifies the incidence of primary informational asymmetry (PIA) and the manifestation of secondary information asymmetries (SIA1, SIA2, and SIA3) in the form of adverse selection, in addition to contractual opportunism in the Brazilian market
Summary
Surety bond (SB) is a type of insurance that underwrites the fulfillment of obligations assumed by the principal party to the obligee party, based on the conditions of the policy issued. The difficulty of existing legal and judicial systems endowed with the impartiality that guarantees the fulfillment of agreements can be considered a market failure (North, 1992), as well as the inexistence of consolidated, homogeneous, and presumable jurisprudence (Pinheiro, 2014) Such issues compromise economic development through high transaction costs expressed by legal uncertainty, which affects creditors, who may use unfair and opportunistic procedures, and principals, either by the reduced offer of credit or by the practice of high bank spreads (Yeung, Silva, & Carvalho, 2014). Governance structures reduce risks and favor the efficiency of analysis and project feasibility at a minimal cost (Williamson, 2012) through other interested organizations (e.g., banks and insurance companies) These organizations carry out types of due diligence (ex-ante) that produce effects on the fulfillment of obligations (ex-post), reducing the AI as they are efficient in the selection and monitoring of risks (Azevedo, Silva, & May, 2018). P5b: High percentages of guarantee generate the more outstanding commitment of insurers through more detailed risk underwriting (ex-ante) and adequate monitoring throughout the contract (ex-post)
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