Contracting in the Fog of War ... Private Security Providers in Iraq: A Principal-Agent Analysis

Abstract

This paper will look at the phenomenon of outsourcing security tasks to private security providers/contractors (PSPs/PSCs) in Iraq after the invasion of coalition forces in March 2003. As a general premise it will be assumed that if something as highly important as providing security is privatized, it is the special interest of the outsourcing party to hold the executing party as close as possible to its own goals, leading partially to problems of accountability. The theory of Institutional Economics seeks to solve these problems putting the contractual relationships in the focus of interest. The principal-agent setting which is part of this approach will be used to examine the question what kind of contractual hazards could be expected in such a deeply destabilized environment as contemporary Iraq and what possibilities does the principal have to enforce the agent’s compliance to the negotiated contract.