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Procurement Contracts under Limited Liability

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Author Info
Sarah Parlane (University College Dublin)

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Abstract

This paper analyses procurement when contractors have limited liability and when the sponsor cannot commit to any specific form of future negotiation. It shows that introducing limited liability enhances competition and thus the likelihood of bankruptcy. Among efficient auctions in which only the winner gets paid, the commonly used first price auction is shown to give the lowest probability of bankruptcy. Finally, it shows that the characterisation of a mechanism minimising the project’s cost results from trading-off bankruptcy costs with informational rents.

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File URL: http://www.esr.ie/Vol34_1Parlane.pdf
File Format: application/pdf
File Function: First version, 2003
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Publisher Info
Article provided by Economic and Social Studies in its journal Economic and Social Review.

Volume (Year): 34 (2003)
Issue (Month): 1 ()
Pages: 1–21
Download reference. The following formats are available: HTML (with abstract), plain text (with abstract), BibTeX, RIS (EndNote, RefMan, ProCite), ReDIF
Handle: RePEc:eso:journl:v:34:y:2003:i:1:p:1-21

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References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. Yossef Spiegel, 1996. "The Role of Debt in Procurement Contracts," Journal of Economics & Management Strategy, Blackwell Publishing, vol. 5(3), pages 379-407, 09. [Downloadable!] (restricted)
  2. Armstrong, Mark, 2000. "Optimal Multi-object Auctions," Review of Economic Studies, Blackwell Publishing, vol. 67(3), pages 455-81, July.
  3. Matthews, Steven, 1987. "Comparing Auctions for Risk Averse Buyers: A Buyer's Point of View," Econometrica, Econometric Society, vol. 55(3), pages 633-46, May. [Downloadable!] (restricted)
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  4. Tirole, Jean, 1986. "Procurement and Renegotiation," Journal of Political Economy, University of Chicago Press, vol. 94(2), pages 235-59, April. [Downloadable!] (restricted)
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  5. Riordan, Michael H & Sappington, David E M, 1988. " Commitment in Procurement Contracting," Scandinavian Journal of Economics, Blackwell Publishing, vol. 90(3), pages 357-72.
  6. Spulber, Daniel F, 1990. "Auctions and Contract Enforcement," Journal of Law, Economics and Organization, Oxford University Press, vol. 6(2), pages 325-44, Fall.
  7. Maskin, Eric S & Riley, John G, 1984. "Optimal Auctions with Risk Averse Buyers," Econometrica, Econometric Society, vol. 52(6), pages 1473-1518, November. [Downloadable!] (restricted)
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This page was last updated on 2009-11-30.

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