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Centralized vs. Decentralized Procurement: Does Dispersed Information Call for Decentralized Decision-Making

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Author Info

  • Vagstad, S.

Abstract

Should the government procure equipment for its agencies or let them run their own procurement auctions? Suppose the agency has private information about product quality, but is inclined to favor local suppliers. Decentralization saves bureaucracy and "agency costs" (costs tied to truthful revelation of quality information), but leads to biased decisions (a discriminatory auction). I show that the costs accociated with discrimination may increase when the quality differences increase.

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Bibliographic Info

Paper provided by Department of Economics, University of Bergen in its series Norway; Department of Economics, University of Bergen with number 1497.

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Length: 15 pages
Date of creation: 1997
Date of revision:
Handle: RePEc:fth:bereco:1497

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Postal: Department of Economics, University of Bergen Fosswinckels Gate 6. N-5007 Bergen, Norway
Phone: (+47)55589200
Fax: (+47)55589210
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Web page: http://www.uib.no/econ/
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Keywords: INCENTIVES ; CONTRACTS ; AUCTIONS ; DISCRIMINATION;

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References

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  1. Nahum D. Melumad & Toshiyuki Shibano, 1991. "Communication in Settings with No. Transfers," RAND Journal of Economics, The RAND Corporation, vol. 22(2), pages 173-198, Summer.
  2. Bolton, Patrick & Farrell, Joseph, 1990. "Decentralization, Duplication, and Delay," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 98(4), pages 803-26, August.
  3. Melumad, Nahum D. & Reichelstein, Stefan, 1989. "Value of communication in agencies," Journal of Economic Theory, Elsevier, vol. 47(2), pages 334-368, April.
  4. McAfee, R. Preston & McMillan, John, 1989. "Government procurement and international trade," Journal of International Economics, Elsevier, vol. 26(3-4), pages 291-308, May.
  5. Vagstad, Steinar, 1995. "Promoting fair competition in public procurement," Journal of Public Economics, Elsevier, vol. 58(2), pages 283-307, October.
  6. Tirole, Jean, 1986. "Hierarchies and Bureaucracies: On the Role of Collusion in Organizations," Journal of Law, Economics and Organization, Oxford University Press, Oxford University Press, vol. 2(2), pages 181-214, Fall.
  7. Laffont, Jean-Jacques & Tirole, Jean, 1991. "Auction design and favoritism," International Journal of Industrial Organization, Elsevier, vol. 9(1), pages 9-42, March.
  8. Laffont, Jean-Jacques, 1990. "Analysis of Hidden Gaming in a Three-Level Hierarchy," Journal of Law, Economics and Organization, Oxford University Press, Oxford University Press, vol. 6(2), pages 301-24, Fall.
  9. Greenstein, Shane, 1993. "Procedural Rules and Procurement Regulations: Complexity Creates Trade-offs," Journal of Law, Economics and Organization, Oxford University Press, Oxford University Press, vol. 9(1), pages 159-80, April.
  10. Caillaud, Bernard & Picard, Pierre & Jullien, Bruno, 1994. "National vs european industrial policies : a contract theory approach," CEPREMAP Working Papers (Couverture Orange) 9401, CEPREMAP.
  11. Cabral, Luis M B & Greenstein, Shane, 1990. "Switching Costs and Bidding Parity in Government Procurement of Computer Systems," Journal of Law, Economics and Organization, Oxford University Press, Oxford University Press, vol. 6(2), pages 453-69, Fall.
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