Contract renewal and incentives in public procurement
AbstractThis Paper explores how the governmentâs choice of renewal policy in public procurement programmes can be used as a mechanism to provide firms with incentives to supply quality. Several firms produce a public service. The firms participate in a tournament where they are ranked according to the quality of their services, and rewarded in terms of contract renewals. We analyse the firmsâ incentives to produce high-quality services, and find that they are maximized if 50% of the contracts are renewed. The optimal renewal policy trades off incentive provision (which requires that a relatively large fraction of the firms are replaced each period) against the entry costs of new firms.
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Bibliographic InfoArticle provided by Elsevier in its journal International Journal of Industrial Organization.
Volume (Year): 24 (2006)
Issue (Month): 2 (March)
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Web page: http://www.elsevier.com/locate/inca/505551
Other versions of this item:
- Dalen, Dag Morten & Moen, Espen R & Riis, Christian, 2004. "Contract Renewal and Incentives in Public Procurement," CEPR Discussion Papers 4540, C.E.P.R. Discussion Papers.
- D44 - Microeconomics - - Market Structure and Pricing - - - Auctions
- L33 - Industrial Organization - - Nonprofit Organizations and Public Enterprise - - - Comparison of Public and Private Enterprise and Nonprofit Institutions; Privatization; Contracting Out
- L51 - Industrial Organization - - Regulation and Industrial Policy - - - Economics of Regulation
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