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Optimal Procurement Contracts under a Binding Budget Constraint

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  • Levaggi, Rosella

Abstract

The traditional literature on agency models predicts that, for zero liability contracts, it is optimal for the principal to pay for the information he cannot observe. However, this principle is not valid for a set of contracts mostly used by government agencies whose distinguishing feature is represented by a stringent budget constraint for the principal. This paper shows that in this environment the principal will either choose a structure exhibiting pooling or a bargaining solution. The bargaining solution represents the analytical proof to the intuition of the difficulty in implementing procurement contracts stated by Laffont and Tirole (1993). Copyright 1999 by Kluwer Academic Publishers

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Bibliographic Info

Article provided by Springer in its journal Public Choice.

Volume (Year): 101 (1999)
Issue (Month): 1-2 (October)
Pages: 23-37

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Handle: RePEc:kap:pubcho:v:101:y:1999:i:1-2:p:23-37

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Web page: http://www.springerlink.com/link.asp?id=100332

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Cited by:
  1. Chen, Xiangfeng & Cai, Gangshu (George), 2011. "Joint logistics and financial services by a 3PL firm," European Journal of Operational Research, Elsevier, vol. 214(3), pages 579-587, November.
  2. Celik, Gorkem, 2004. "Counter Marginalization of Information Rents under Collusion," Microeconomics.ca working papers celik-04-01-23-02-48-07, Vancouver School of Economics, revised 27 Jan 2008.
  3. Rosella Levaggi, 2005. "Hospital Health Care: Pricing and Quality Control in a Spatial Model with Asymmetry of Information," International Journal of Health Care Finance and Economics, Springer, vol. 5(4), pages 327-349, December.
  4. Michele Moretto & Rosella Levaggi, 2004. "Investment in Hospital Care Technology under Different Purchasing Rules: A Real Option Approach," Working Papers 2004.75, Fondazione Eni Enrico Mattei.
  5. Anthon, Signe & Bogetoft, Peter & Thorsen, Bo Jellesmark, 2007. "Socially optimal procurement with tight budgets and rationing," Journal of Public Economics, Elsevier, vol. 91(7-8), pages 1625-1642, August.
  6. Jonathan Levin, 2000. "Relational Incentive Contracts," Working Papers 01002, Stanford University, Department of Economics.
  7. Rosella Levaggi, 2007. "Regulating internal markets for hospital care," Journal of Regulatory Economics, Springer, vol. 32(2), pages 173-193, October.

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