Procurement Contracts under Limited Liability
AbstractI analyze in this paper procurement from agents protected by limited liability. I model limited liability as a verifiable bargaining tool that enables the agents to induce renegotiation when the contracted price does not cover the project's cost. I show that the determination of the optimal mechanism is based on a trade-off between playing informal rents and renegotiation costs. When the renegotiation costs are sufficiently large the first price auction is optimal among efficient mechanisms.
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Bibliographic InfoPaper provided by College Dublin, Department of Political Economy- in its series Papers with number 98/3.
Length: 34 pages
Date of creation: 1998
Date of revision:
Contact details of provider:
Postal: Ireland; University College Dublin, Department of Political Economy, Centre for Economic Research, Belfield, Dublin 4
Fax: +353-1-283 0068
Web page: http://www.ucd.ie/economics/
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Other versions of this item:
- D44 - Microeconomics - - Market Structure and Pricing - - - Auctions
- G1 - Financial Economics - - General Financial Markets
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- Yossef Spiegel, 1996. "The Role of Debt in Procurement Contracts," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 5(3), pages 379-407, 09.
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311, Massachusetts Institute of Technology (MIT), Department of Economics.
- Jean Tirole, 1985.
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362, Massachusetts Institute of Technology (MIT), Department of Economics.
- R. Preston McAfee & John McMillan, 1986. "Bidding for Contracts: A Principal-Agent Analysis," RAND Journal of Economics, The RAND Corporation, vol. 17(3), pages 326-338, Autumn.
- Kosmas Marinakis & Theofanis Tsoulouhas, 2006.
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Working Paper Series
009, North Carolina State University, Department of Economics, revised Sep 2006.
- Marinakis, Kosmas & Tsoulouhas, Theofanis, 2013. "Are tournaments optimal over piece rates under limited liability for the principal?," International Journal of Industrial Organization, Elsevier, vol. 31(3), pages 223-237.
- Chang, Wei-Shiun & Salmon, Timothy C. & Saral, Krista Jabs, 2013. "Procurement Auctions with Renegotiation and Wealth Constraints," MPRA Paper 50137, University Library of Munich, Germany.
- 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).
- 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.
- Ottorino Chillemi & Claudio Mezzetti, 2014. "Optimal procurement mechanisms: bidding on price and damages for breach," Economic Theory, Springer, vol. 55(2), pages 335-355, February.
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