Incentives versus Transaction Costs: A Theory of Procurement Contracts
Inspired by facts from the private-sector construction industry, we develop a model that explains many stylized facts of procurement contracts. The buyer in our model incurs a cost of providing a comprehensive design and is faced with a tradeoff between providing incentives and reducing ex post transaction costs due to costly renegotiation. We show that cost-plus contracts are preferred to fixed-price contracts when a project is more complex. We briefly discuss how fixed-price or cost-plus contracts might be preferred to other incentive contracts. Finally, our model provides some microfoundations for ideas from Transaction Cost Economics. Copyright 2001 by the RAND Corporation.
To our knowledge, this item is not available for
download. To find whether it is available, there are three
1. Check below under "Related research" whether another version of this item is available online.
2. Check on the provider's web page whether it is in fact available.
3. Perform a search for a similarly titled item that would be available.
Volume (Year): 32 (2001)
Issue (Month): 3 (Autumn)
|Contact details of provider:|| Web page: http://www.rje.org |
|Order Information:||Web: https://editorialexpress.com/cgi-bin/rje_online.cgi|
When requesting a correction, please mention this item's handle: RePEc:rje:randje:v:32:y:2001:i:3:p:387-407. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: ()
If references are entirely missing, you can add them using this form.