Small business participation procurement policy: Subcontracting vs Allotment
Allotment and subcontracting are the two procedures enabling small businesses to participate in procurement. We compare these two procedures in the context of a procurement contract awarded by a first-price sealed-bid auction. We assume that the public buyer wishes to fulfil two different goals: to minimize expected costs of the contract for the public buyer and to maximize small businesses’ profit. We show that, under specific cost-technology conditions we determine, the allotment procedure not only enables extensive participation by small businesses but also can achieve the goal of minimizing expected total costs for the public buyer. JEL classification: D44; L51.
Volume (Year): 78 (2012)
Issue (Month): 2 ()
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