Public Procurement Under Limited Liability
AbstractPublic procurement faces the risk that the contractor goes bankrupt before the completion of the work. The possibility to declare bankruptcy makes the contractors behave more aggressively.This leads to abnormally low tenders and to the break-down of revenue equivalence. Upon this result we investigate frequently used public procurement methods that were designed to avoid the bankruptcy of the winning contractor. We show that the averagebid-method or methods that exclude the lowest offer fare quite badly. We also show that — in contrast to standard auction theory — multi-sourcing, rationing and other means to soften competition may fare better than a standard auction.
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Bibliographic InfoArticle provided by SIPI Spa in its journal Rivista di Politica Economica.
Volume (Year): 96 (2006)
Issue (Month): 1 (January-February)
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Find related papers by JEL classification:
- D44 - Microeconomics - - Market Structure and Pricing - - - Auctions
- D45 - Microeconomics - - Market Structure and Pricing - - - Rationing; Licensing
- D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
- G33 - Financial Economics - - Corporate Finance and Governance - - - Bankruptcy; Liquidation
- H57 - Public Economics - - National Government Expenditures and Related Policies - - - Procurement
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- Burguet, Roberto & Ganuza, Juan-José & Hauk, Esther, 2012.
"Limited liability and mechanism design in procurement,"
Games and Economic Behavior,
Elsevier, vol. 76(1), pages 15-25.
- Roberto Burguet & Juan-José Ganuza & Esther Hauk, 2009. "Limited Liability and Mechanism Design in Procurement," Working Papers 383, Barcelona Graduate School of Economics.
- Roberto Burguet & Juan-José Ganuza & Esther Hauk, 2009. "Limited Liability and Mechanism Design in Procurement," UFAE and IAE Working Papers 767.09, Unitat de Fonaments de l'Anàlisi Econòmica (UAB) and Institut d'Anàlisi Econòmica (CSIC).
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