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Procurement Policy and Contracting Efficiency

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Author Info
Bower, Anthony G
Abstract

The contracting literature has emphasized the optimality of using certain contracting instruments, such as multiple cost observations, full commitment, self-selection, and competition. A two-period procurement model is constructed incorporating all of the instruments and optimal contracts are characterized. Numerical examples suggest that the marginal benefits of full commitment, self-selection, and multiple cost observations are small, while the benefits of competition are larger. To obtain some evidence on contracting costs, defense contracting is reviewed. It indicates that using these instruments is very costly, thus calling into question the optimality of using all of the procurement instruments. Copyright 1993 by Economics Department of the University of Pennsylvania and the Osaka University Institute of Social and Economic Research Association.

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File URL: http://links.jstor.org/sici?sici=0020-6598%28199311%2934%3A4%3C873%3APPACE%3E2.0.CO%3B2-1&origin=repec
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Article provided by Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association in its journal International Economic Review.

Volume (Year): 34 (1993)
Issue (Month): 4 (November)
Pages: 873-901
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Handle: RePEc:ier:iecrev:v:34:y:1993:i:4:p:873-901

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  1. William P. Rogerson, 2003. "Simple Menus of Contracts in Cost-Based Procurement and Regulation," American Economic Review, American Economic Association, vol. 93(3), pages 919-926, June. [Downloadable!] (restricted)
  2. Leon Yang Chu & David E. M. Sappington, 2007. "Simple Cost-Sharing Contracts," American Economic Review, American Economic Association, vol. 97(1), pages 419-428, March.
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