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Optimal Procurement Contracts under a Binding Budget Constraint

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  • Levaggi, Rosella

Abstract

The traditional literature on agency models predicts that, for zero liability contracts, it is optimal for the principal to pay for the information he cannot observe. However, this principle is not valid for a set of contracts mostly used by government agencies whose distinguishing feature is represented by a stringent budget constraint for the principal. This paper shows that in this environment the principal will either choose a structure exhibiting pooling or a bargaining solution. The bargaining solution represents the analytical proof to the intuition of the difficulty in implementing procurement contracts stated by Laffont and Tirole (1993). Copyright 1999 by Kluwer Academic Publishers

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  • Levaggi, Rosella, 1999. "Optimal Procurement Contracts under a Binding Budget Constraint," Public Choice, Springer, vol. 101(1-2), pages 23-37, October.
  • Handle: RePEc:kap:pubcho:v:101:y:1999:i:1-2:p:23-37
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    Cited by:

    1. Rosella Levaggi & Moretto Michele, 2008. "Investment In Hospital Care Technology Under Different Purchasing Rules: A Real Option Approach," Bulletin of Economic Research, Wiley Blackwell, vol. 60(2), pages 159-181, April.
    2. Chen, Xiangfeng & Cai, Gangshu (George), 2011. "Joint logistics and financial services by a 3PL firm," European Journal of Operational Research, Elsevier, vol. 214(3), pages 579-587, November.
    3. Celik, Gorkem, 2004. "Counter Marginalization of Information Rents under Collusion," Microeconomics.ca working papers celik-04-01-23-02-48-07, Vancouver School of Economics, revised 27 Jan 2008.
    4. Jonathan Levin, 2003. "Relational Incentive Contracts," American Economic Review, American Economic Association, vol. 93(3), pages 835-857, June.
    5. Rosella Levaggi, 2007. "Regulating internal markets for hospital care," Journal of Regulatory Economics, Springer, vol. 32(2), pages 173-193, October.
    6. Anthon, Signe & Bogetoft, Peter & Thorsen, Bo Jellesmark, 2007. "Socially optimal procurement with tight budgets and rationing," Journal of Public Economics, Elsevier, vol. 91(7-8), pages 1625-1642, August.
    7. Rosella Levaggi, 2005. "Hospital Health Care: Pricing and Quality Control in a Spatial Model with Asymmetry of Information," International Journal of Health Economics and Management, Springer, vol. 5(4), pages 327-349, December.

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