Modeling offset policy in government procurement

This paper develops an empirical model to examine offset arrangements in government procurement. Offsets are non-standard contracts that governments use to extract rents from multinational corporations. Previous contributions focus on the transaction cost Taylor (2003); Udis and Maskus (1991); Liesch (1991) and bundling Hall and Markowski (1996) rationale for offsets. These studies are meaningful, but are devoid of quantitative models needed to test the theoretical claims. This study fills part of the gap in the literature. The results suggest that while economic variables (transaction costs, price, quality) are part of the offset selection process, political economy variables (security alliances and rent-seeking) tend to exert more influence on policy. (C) 2003 Society for Policy Modeling. Published by Elsevier Inc. All rights reserved.