English, Article, Journal or magazine article edition: Using Cost Observation to Regulate Bureaucratic Firms Ana Pinto Borges; João Correia-da-Silva

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Bookmark: http://trove.nla.gov.au/version/182615
Physical Description
  • preprint
Language
  • English

Edition details

Title
  • Using Cost Observation to Regulate Bureaucratic Firms
Author
  • Ana Pinto Borges
  • João Correia-da-Silva
Physical Description
  • preprint
Notes
  • We study regulation of a bureaucratic provider of a public good in the presence of moral hazard and adverse selection. By bureaucratic we mean that it values output in itself, and not only profit. Three different financing systems are studied - cost reimbursement, prospective payment, and the optimal contract. In all cases, the output level increases with the bureaucratic bias. We find that the optimal contract is linear in cost (fixed payment plus partial cost-reimbursement). A stronger preference for high output reduces the tendency of the firm to announce a high cost (adverse selection), allowing a more powered incentive scheme (a lower fraction of the costs is reimbursed), which alleviates the problem of moral hazard.
  • Procurement, Regulation, Adverse selection, Moral hazard, Bureaucracy
  • RePEc:por:fepwps:304
Language
  • English
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