Procurement Contracts under Limited Liability
AbstractThis 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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Bibliographic InfoArticle provided by Economic and Social Studies in its journal Economic and Social Review.
Volume (Year): 34 (2003)
Issue (Month): 1 ()
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Other versions of this item:
- D44 - Microeconomics - - Market Structure and Pricing - - - Auctions
- G1 - Financial Economics - - General Financial Markets
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- Roberto Burguet & Juan-José Ganuza & Esther Hauk, 2009. "Limited Liability and Mechanism Design in Procurement," Working Papers 383, Barcelona Graduate School of Economics.
- Marinakis, Kosmas & Tsoulouhas, Theofanis, 2013.
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- Kosmas Marinakis & Theofanis Tsoulouhas, 2006. "Are Tournaments Optimal over Piece Rates under Limited Liability for the Principal?," Working Paper Series 009, North Carolina State University, Department of Economics, revised Sep 2006.
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