Procurement contracts under limited liability
AbstractThis paper analyses procurement when contractors have limited liability and when the sponsor cannot commit to any specific form of future negotiation. It shows that introducing limited liability enhances competition and thus the likelihood of bankruptcy. Among efficient auctions in which only the winner gets paid, the commonly used first price auction is shown to give the lowest probability of bankruptcy. Finally, it shows that the characterisation of a mechanism minimising the project’s cost results from trading-off bankruptcy costs with informational rents.
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Bibliographic InfoPaper provided by University College Dublin in its series Open Access publications from University College Dublin with number urn:hdl:10197/685.
Date of creation: 2003
Date of revision:
Publication status: Published in Economic and Social Review (2003) v.34, p.1-21
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Web page: http://www.ucd.ie
Industrial procurement--Mathematical models;
Other versions of this item:
- D44 - Microeconomics - - Market Structure and Pricing - - - Auctions
- G1 - Financial Economics - - General Financial Markets
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- 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.
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