Stalking the unhappy contract

The goal of most contracts, it is usually said, is to maximize the joint profits of the two parties.  But some, points out Margaret Friedlander Brinig (Iowa), do not fit that model. In a new paper, “Unhappy Contracts”: The Structure and Effect of Telecommunication Interconnection Agreements, she takes a look at the interconnection agreement entered into by telephone companies in the wake of the 1996 Telecommunications Act.

She takes an unusual approach, looking in great depth at 140 of these contracts entered into in Michigan, analyzing them in light of litigated cases, subsequent amendments, and proceedings by the Michigan Public Service Commission—all the while seeking to determine which characteristics seem to lead to cooperation and which to future conflict.  Click on the link below for the abstract.

ABSTRACT:

While most contracts are made between two parties in search of profit and without substantial government scrutiny, some are not so happy. This project examines one such species, the interconnection agreement entered into under the 1996 Telecommunications Act. After discussing the history and requirements of the statute, the paper hypothesizes that instead of the more typical profit maximization motive, the dominant party, in this case the incumbent local service provider, might seek to minimize losses. As in other cases where there is substantial uncertainty, parties to interconnection agreements might also be expected to cluster payment terms around some common patterns, or focal points.

The empirical section of the paper investigates these hypotheses through the complete set of 140 contracts entered into in Michigan between various phone companies entering the local phone market, called CLECs, and one local incumbent provider, SBC. Not only does the paper look at what determines various contract terms, but also it examines through Michigan Public Service Commission minutes, litigated cases and contract amendments what characteristics predict whether the parties can successfully adjust over time or whether they continue to experience conflict.