Self-Correcting Mechanisms in Public Procurement: Why Award and Contract Should be Separated
AbstractIn public procurement a temporal separation of award and actual contracting can frequently be observed. In this paper we give an explanation for this institutional setting. For incomplete procurement contracts we show that such a separation may increase efficiency. We show that efficiency can be increased by post-award, pre-contract negotiations between the award-winning seller and one of the `losing' sellers. Surprisingly, the efficiency gains can be higher if the award is given to a seller with a lower reputation for quality instead of to a seller with higher reputation. Under certain conditions post-award, pre-contract rent-seeking activities also increase efficiency. This is always the case if the procurement agency is corrupt, but may also occur in the case of lobbying.
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Bibliographic InfoPaper provided by University of Bonn, Germany in its series Bonn Econ Discussion Papers with number bgse5_2000.
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Procurement; Incomplete contracts; lobbying; corruption;
Other versions of this item:
- Dieter Boes & Martin Kolmar, 2000. "Self-Correcting Mechanisms in Public Procurement: Why Award and Contract Should be Separated," CESifo Working Paper Series 302, CESifo Group Munich.
- D23 - Microeconomics - - Production and Organizations - - - Organizational Behavior; Transaction Costs; Property Rights
- H57 - Public Economics - - National Government Expenditures and Related Policies - - - Procurement
- L51 - Industrial Organization - - Regulation and Industrial Policy - - - Economics of Regulation
This paper has been announced in the following NEP Reports:
- NEP-ALL-2000-08-26 (All new papers)
- NEP-PUB-2000-08-26 (Public Finance)
- NEP-REG-2000-08-26 (Regulation)
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