English, Article, Journal or magazine article edition: Holdups, Quality Choice, and the Achilles' Heel in Government Contracting Dieter Bös; Christoph Lülfesmann

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Bookmark: http://trove.nla.gov.au/version/52403
Physical Description
  • preprint
Language
  • English

Edition details

Title
  • Holdups, Quality Choice, and the Achilles' Heel in Government Contracting
Author
  • Dieter Bös
  • Christoph Lülfesmann
Physical Description
  • preprint
Notes
  • This paper investigates a procurement relationship between a welfare-oriented government and a private supplier. The agents face several versions of the trading good which differ in quality and production costs, and the differences between those items are undescribable ex ante. In presence of this `quality-choice problem', no initial contract may induce efficient cost-reducing investments of the supplier. In contrast, a first-best result is always attainable in private procurement where the buyer maximizes profit rather than welfare. We identify the government's welfare objective as its Achilles' heel: equilibrium trade prices differ in public and private procurement, and private governance can lead to more efficient investment decisions even though renegotiation ensures the ex-post efficient trade decision in either regime.
  • Procurement, Incomplete Contracts, Quality Choice, Governance Structure
  • RePEc:bon:bonedp:bgse28_2001
Language
  • English
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