Centralized vs. decentralized procurement: Does dispersed information call for decentralized decision-making?
Should the government procure equipment for its agencies or let them run their own procurement auctions? Suppose the agency has private information about product quality, but is inclined to favor local suppliers. Decentralization saves bureaucracy and "agency costs" (costs tied to truthful revelation of quality information), but leads to biased decisions (a discriminatory auction). I show that the costs accociated with discrimination may increase when the quality differences increase.
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- Vagstad, Steinar, 1995. "Promoting fair competition in public procurement," Journal of Public Economics, Elsevier, vol. 58(2), pages 283-307, October.
- Bolton, Patrick & Farrell, Joseph, 1990. "Decentralization, Duplication, and Delay," Journal of Political Economy, University of Chicago Press, vol. 98(4), pages 803-26, August.
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- Nahum D. Melumad & Toshiyuki Shibano, 1991. "Communication in Settings with No. Transfers," RAND Journal of Economics, The RAND Corporation, vol. 22(2), pages 173-198, Summer.
- McAfee, R. Preston & McMillan, John, 1989. "Government procurement and international trade," Journal of International Economics, Elsevier, vol. 26(3-4), pages 291-308, May.
- Laffont, Jean-Jacques & Tirole, Jean, 1991. "Auction design and favoritism," International Journal of Industrial Organization, Elsevier, vol. 9(1), pages 9-42, March.
- Cabral, Luis M B & Greenstein, Shane, 1990. "Switching Costs and Bidding Parity in Government Procurement of Computer Systems," Journal of Law, Economics and Organization, Oxford University Press, vol. 6(2), pages 453-69, Fall.
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