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The Design of Procurement Contracts

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  • Rob, Rafael

Abstract

This paper investigates the interaction between bidding for procurementprograms and fractional buys. This problem is analyzed from the standpoint of a cost-minimizing procuring agent. It is shown that underimperfect competition, a multiple-source purchase is generally preferred to a single-source contract. Similarly, the author demonstrates that a (strictly) intermediate cost sharing arrangement,i.e., an incentive contract, dominates either the cost-plus or the firm-fixed price arrangements. Copyright 1986 by American Economic Association.

Suggested Citation

  • Rob, Rafael, 1986. "The Design of Procurement Contracts," American Economic Review, American Economic Association, vol. 76(3), pages 378-389, June.
  • Handle: RePEc:aea:aecrev:v:76:y:1986:i:3:p:378-89
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    Cited by:

    1. Manelli, Alejandro M. & Vincent, Daniel R., 2004. "Duality in procurement design," Journal of Mathematical Economics, Elsevier, vol. 40(3-4), pages 411-428, June.
    2. Biglaiser, Gary & Vettas, Nikolaos, 2004. "Dynamic Price Competition with Capacity Constraints and Strategic Buyers," CEPR Discussion Papers 4315, C.E.P.R. Discussion Papers.
    3. Zhibin (Ben) Yang & Göker Ayd{i}n & Volodymyr Babich & Damian R. Beil, 2009. "Supply Disruptions, Asymmetric Information, and a Backup Production Option," Management Science, INFORMS, vol. 55(2), pages 192-209, February.
    4. Cuihong Li & Laurens G. Debo, 2009. "Second Sourcing vs. Sole Sourcing with Capacity Investment and Asymmetric Information," Manufacturing & Service Operations Management, INFORMS, vol. 11(3), pages 448-470, July.
    5. Marc Guyot & Radu Vranceanu, 1997. "Quelle réglementation pour le secteur de la Défense : l'expérience américaine," Revue Française d'Économie, Programme National Persée, vol. 12(3), pages 167-193.
    6. Rey, Patrick & Salant, David, 2017. "Allocating essential inputs," TSE Working Papers 17-820, Toulouse School of Economics (TSE), revised Feb 2018.
    7. Esther Gal-Or & Mordechai Gal-Or & Anthony Dukes, 2007. "Optimal information revelation in procurement schemes," RAND Journal of Economics, RAND Corporation, vol. 38(2), pages 400-418, June.
    8. Armstrong, Mark & Sappington, David E.M., 2007. "Recent Developments in the Theory of Regulation," Handbook of Industrial Organization, Elsevier.
    9. Yildirim, Huseyin, 2004. "Piecewise procurement of a large-scale project," International Journal of Industrial Organization, Elsevier, vol. 22(8-9), pages 1349-1375, November.
    10. James J. Anton & Dennis A. Yao, 1990. "Measuring the effectiveness of competition in defense procurement: A survey of the empirical literature," Journal of Policy Analysis and Management, John Wiley & Sons, Ltd., vol. 9(1), pages 60-79.

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