Should we base procurement rules on the competition of linear incentive contracts ?

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Should we base procurement rules on the competition of linear incentive contracts ?

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François MARECHAL

Abstract

The study of optimal procurement contracts under informational asymmetries generally assumes that the cost disturbance affecting contractor's cost function is not observed by the principal. We assume here that this variable (which may represent environmental or geology conditions...) can be observed in the process of the contract. Thus, the principal is now able to make the payment contingent on the realization of this variable. In this context, the aim of this paper is to compare a linear incentive contract with a "modified" fixed-price contract, which allows the payment to the selected contractor to be independent upon his bid in the case of a high-cost value of exogenous uncertainty.

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Paper provided by Université de Lausanne, Faculté des HEC, DEEP in its series Cahiers de Recherches Economiques du Département d'Econométrie et d'Economie politique (DEEP) with number 03.07.

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Length: 14 pages
Date of creation: Mar 2003
Date of revision:
Handle: RePEc:lau:crdeep:03.07

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Find related papers by JEL classification:
H57 - Public Economics - - National Government Expenditures and Related Policies - - - Procurement
D44 - Microeconomics - - Market Structure and Pricing - - - Auctions

This paper has been announced in the following NEP Reports:

NEP-ALL-2003-04-13 (All new papers)

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

McAfee, R Preston & McMillan, John, 1987. "Auctions and Bidding," Journal of Economic Literature, American Economic Association, vol. 25(2), pages 699-738, June. [Downloadable!] (restricted)
Laffont, Jean-Jacques & Tirole, Jean, 1987. "Auctioning Incentive Contracts," Journal of Political Economy, University of Chicago Press, vol. 95(5), pages 921-37, October. [Downloadable!] (restricted)
Other versions:
- Jean-Jaques Laffont & Jean Tirole, 1985. "Auctioning Incentive Contracts," Working papers 403, 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. [Downloadable!] (restricted)
R. Preston McAfee & John McMillan, 1987. "Competition for Agency Contracts," RAND Journal of Economics, The RAND Corporation, vol. 18(2), pages 296-307, Summer. [Downloadable!] (restricted)

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