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A Contest Model of Liberalizing Government Procurements

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Author Info

  • Ngo Van Long

    ()
    (Department of Economics, McGill University, Montreal)

  • Frank StŠhler

    ()
    (Department of Economics, University of Otago)

Abstract

This paper models government procurements as a contest among domestic firms, and - in case of liberalization - domestic and foreign firms. Liberalizing procurements reduces wasteful domestic lobbying but also increases the likelihood that a foreign firm will capture the rent. We show that the domestic welfare change is not monotonic in the foreign firmsÕ abilities. Domestic welfare increases only if the gross surplus generated by foreign firms is sufficiently large. Furthermore, we show that, from the global welfare point of view, domestically optimal liberalization policies can be either excessive or too restrictive.

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File URL: http://www.business.otago.ac.nz/econ/research/discussionpapers/DP_0803.pdf
File Function: First version, 2008
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Bibliographic Info

Paper provided by University of Otago, Department of Economics in its series Working Papers with number 0803.

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Length: 20 pages
Date of creation: Jan 2008
Date of revision: Jan 2008
Handle: RePEc:otg:wpaper:0803

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Keywords: Trade liberalization; trade in services; government procurements.;

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References

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  1. Nitzan, Shmuel, 1994. "Modelling rent-seeking contests," European Journal of Political Economy, Elsevier, vol. 10(1), pages 41-60, May.
  2. McAfee, R. Preston & McMillan, John, 1989. "Government procurement and international trade," Journal of International Economics, Elsevier, vol. 26(3-4), pages 291-308, May.
  3. Nti, Kofi O, 1999. " Rent-Seeking with Asymmetric Valuations," Public Choice, Springer, vol. 98(3-4), pages 415-30, March.
  4. Evenett, Simon J. & Hoekman, Bernard M., 2005. "Government procurement: market access, transparency, and multilateral trade rules," European Journal of Political Economy, Elsevier, vol. 21(1), pages 163-183, March.
  5. Richard Cornes & Roger Hartley, 2002. "Asymmetric Contests with General Technologies," Keele Economics Research Papers KERP 2002/22, Centre for Economic Research, Keele University.
  6. Stein, William E, 2002. " Asymmetric Rent-Seeking with More Than Two Contestants," Public Choice, Springer, vol. 113(3-4), pages 325-36, December.
  7. Vagstad, Steinar, 1995. "Promoting fair competition in public procurement," Journal of Public Economics, Elsevier, vol. 58(2), pages 283-307, October.
  8. Branco, Fernando, 1994. "Favoring domestic firms in procurement contracts," Journal of International Economics, Elsevier, vol. 37(1-2), pages 65-80, August.
  9. Auriol, E., 1998. "Corruption in Procurement and Public Purchase," G.R.E.Q.A.M. 98a29, Universite Aix-Marseille III.
  10. James A. Brander & Barbara J. Spencer, 1981. "Tariffs and the Extraction of Foreign Monopoly Rents under Potential Entry," Canadian Journal of Economics, Canadian Economics Association, vol. 14(3), pages 371-89, August.
  11. Federico Trionfetti, 2000. "Discriminatory Public Procurement and International Trade," The World Economy, Wiley Blackwell, vol. 23(1), pages 57-76, 01.
  12. Mougeot, Michel & Naegelen, Florence, 2005. "A political economy analysis of preferential public procurement policies," European Journal of Political Economy, Elsevier, vol. 21(2), pages 483-501, June.
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Citations

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Cited by:
  1. Kenji Fujiwara & Ngo Van Long, 2012. "Welfare Effects of Reducing Home Bias in Government Procurements: A Dynamic Contest Model," Review of Development Economics, Wiley Blackwell, vol. 16(1), pages 137-147, 02.
  2. Kräkel, Matthias, 2009. "Competitive Careers as a Way to Mediocracy," Discussion Paper Series of SFB/TR 15 Governance and the Efficiency of Economic Systems 286, Free University of Berlin, Humboldt University of Berlin, University of Bonn, University of Mannheim, University of Munich.
  3. Van Long, Ngo, 2013. "The theory of contests: A unified model and review of the literature," European Journal of Political Economy, Elsevier, vol. 32(C), pages 161-181.

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