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Dual Sourcing under Risky Public Procurement


  • Vanessa Valero


This paper examines the provision of a public service subject to a risk of disruption. To hedge against this risk, a public authority may use a dual sourcing policy. Instead of awarding the production to one supplier, it may split it between two suppliers. If the primary supplier is disrupted, the production may still be provided by the secondary supplier. However, dual sourcing increases the procurement cost, since the secondary supplier might be more expensive than the primary one. The public authority thus faces a trade-off when deciding upon its procurement policy. This trade-off is analysed under asymmetry of information on the secondary supplier's cost. We therefore determine the choice of the appropriate set of suppliers and the quantity to be produced by each selected supplier. We then extend our model by allowing the primary supplier to exert an effort to reduce its probability of disruption. Finally, our model is extended to consider the influence of lobbying on the public authority's choice of procurement policy.

Suggested Citation

  • Vanessa Valero, 2016. "Dual Sourcing under Risky Public Procurement," Annals of Economics and Statistics, GENES, issue 121-122, pages 25-44.
  • Handle: RePEc:adr:anecst:y:2016:i:121-122:p:25-44 DOI: 10.15609/annaeconstat2009.121-122.25

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    References listed on IDEAS

    1. Cornes,Richard & Sandler,Todd, 1996. "The Theory of Externalities, Public Goods, and Club Goods," Cambridge Books, Cambridge University Press, number 9780521477185, March.
    2. Mohring, Herbert & Boyd, J Hayden, 1971. "Analysing 'Externalities': 'Direct Interaction' vs 'Asset Utilization' Frameworks," Economica, London School of Economics and Political Science, vol. 38(152), pages 347-361, November.
    3. Albert Breton, 1974. "The economic theory of representative government: A reply," Public Choice, Springer, vol. 20(1), pages 129-133, December.
    4. Oakland, William H., 1972. "Congestion, public goods and welfare," Journal of Public Economics, Elsevier, vol. 1(3-4), pages 339-357, November.
    5. Holtermann, S E, 1972. "Externalities and Public Goods," Economica, London School of Economics and Political Science, vol. 39(153), pages 78-87, February.
    6. Agnar Sandmo, 1973. "Public Goods and the Technology of Consumption," Review of Economic Studies, Oxford University Press, vol. 40(4), pages 517-528.
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    More about this item


    Public Procurement; Dual Sourcing; Risk of Disruption.;

    JEL classification:

    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • H41 - Public Economics - - Publicly Provided Goods - - - Public Goods
    • H57 - Public Economics - - National Government Expenditures and Related Policies - - - Procurement


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