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Public Procurement Under Limited Liability

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Author Info
Andreas R. Engel () (TWS Partners, Munich)
Achim Wambach () (University of Cologne)
Abstract

Public 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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File URL: http://www.rivistapoliticaeconomica.it/2006/gen-feb/engel_wambach.php
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Publisher Info
Article provided by SIPI Spa in its journal Rivista di Politica Economica.

Volume (Year): 96 (2006)
Issue (Month): 1 (January-February)
Pages: 13-40
Download reference. The following formats are available: HTML (with abstract), plain text (with abstract), BibTeX, RIS (EndNote, RefMan, ProCite), ReDIF
Handle: RePEc:rpo:ripoec:v:96:y:2006:i:1:p:13-40

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Related research
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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
G33 - Financial Economics - - Corporate Finance and Governance - - - Bankruptcy; Liquidation
H57 - Public Economics - - National Government Expenditures and Related Policies - - - Procurement

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This page was last updated on 2009-12-11.

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