- **H2.2:** When the supervisor and contractor execute contracts frequently together, contracts are more likely to be overspent.

Our third and fourth hypotheses posit that supervisors play the central role in allowing projects to be overspent. They would enable a contractor to file for excessive variation orders or claims and use their political connections to ensure that these are approved by the CDR board. The same would hold true in hypothesis 4, in that both supervisors and contractors would be required to have political connections.

**H2.3:** When the supervisor is politically connected, contracts are more likely to be overspent. **H2.4:** When both the supervisor and contractor are PCFs, contracts are more likely to be overspent.

Alternatively, cost overruns would only be possible when searching costs are reduced at the design stage. Politically connected designers would limit competition among contractors and know that elites facilitate the approval of designs that require adjustments during the implementation stage of a project.

**H2.5:** When the designer is politically connected, contracts are more likely to be overspent.

# **_Bargaining_**

In the above hypotheses, we have assumed that elites have similar bargaining costs regardless of which politician or elite a firm is connected to. Previous studies from other country contexts have found various attributes of a political connection to matter, such as party affiliation (Goldman, Rocholl and So, 2013; Baránek and Titl, 2020), or the political function (Schoenherr, 2019). Following previous work on elite-capture of public institutions in Lebanon (Leenders, 2012; Salloukh, 2019; Mahmalat and Zoughaib, 2021), however, we hypothesize that elites which were able to penetrate public institutions with loyal personnel have a larger degree of discretion over decisions in the board of CDR.

In a third hypothesis, we test whether the “quality” of a political connection helps to reduce bargaining costs. Firms would place higher trust in the ability of elites to honor intertemporal transactions that are “embedded” in the institutional framework and exert discretion over decisions via loyal personnel. We expect that PCF1 elites have lower bargaining costs to broker deals and therefore make overspending and overpricing more likely.

**H3** : Only PCF1 connections can succeed in overpricing or overspending contracts.

# **_Enforcing_**

A central issue of corrupt exchanges is deferred reciprocity, making enforcement costly. Many deals require that mutual promises are honored with a time-lag, as not all resources are available at the same time (for example, promises for upcoming projects can only be kept once these projects are implemented). PCF1 elites, then, should face lower costs to enforce deals than other (PCF2) elites with direct discretion over decision making and are able to provide kickbacks in future contracts.

- **H4:** PCF1 connected consultants involved in the cartel are compensated with inflated contracts in intertemporal transactions.

# **3. Data and methods**

We leverage two sources of data. First, we analyze a data set of all 394 infrastructure procurement contracts awarded by CDR between January 11, 2008, and March 12, 2018. The data set contains the name of the contract and winning firm, the initially awarded contract value, the sources of funding, the project location(s), the sector, and other identifying information about each contract. We obtained the data from CDR with a formal request pursuing the access to information law.

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