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Incomplete Procurement Contracting with a Risk-Averse Agent

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  • Takeshi Nishimura
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    Abstract

    In a two-stage procurement model, we compare two types of fixed-price contracting schemes, bundling and unbundling. The buyer's choice of scheme involves an intertemporal tradeoff: providing incentives for cost-reducing investment and sharing production-cost risk between the risk-neutral buyer and the risk-averse supplier. The main result shows that unbundling outperforms bundling when both the supplier and the entrant in ex post competitive bidding confront an aggregate risk, and the externality of the supplier's investment on the entrant's production cost is low.

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    File URL: http://gcoe.ier.hit-u.ac.jp/research/discussion/2008/pdf/gd10-165.pdf
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    Bibliographic Info

    Paper provided by Institute of Economic Research, Hitotsubashi University in its series Global COE Hi-Stat Discussion Paper Series with number gd10-165.

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    Date of creation: Jan 2011
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    Handle: RePEc:hst:ghsdps:gd10-165

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    Cited by:
    1. Hoppe, Eva I. & Kusterer, David J. & Schmitz, Patrick W., 2013. "Public–private partnerships versus traditional procurement: An experimental investigation," Journal of Economic Behavior & Organization, Elsevier, vol. 89(C), pages 145-166.

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