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SMEs and public procurement policy

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  • Pierre-Henri Morand

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Abstract

In this paper, we characterize an optimal procurement policy as a mechanism design problem when an allotment of the contract is available, i.e., when a government faces both SMEs and large firms for carrying out a heterogeneously divisible project. Our model allows us to analyze all procurement policies (set-asides, favoritism, non-discriminatory rules), taking into account both efficiency and distributive arguments and derive a normative framework. We show that set-asides are not generally optimal, whatever the industrial preferences of the government are, while the optimal preferential treatments of firms implies complex non-linear rules. We prove that the optimal policy can be implemented using a modified Vickrey-type auction. We also consider that the firms can reduce their cost by a non observable effort, and exhibit the specific impact of cost reduction incentives on the optimal policies. Copyright Springer-Verlag Berlin/Heidelberg 2003

Suggested Citation

  • Pierre-Henri Morand, 2003. "SMEs and public procurement policy," Review of Economic Design, Springer;Society for Economic Design, vol. 8(3), pages 301-318, October.
  • Handle: RePEc:spr:reecde:v:8:y:2003:i:3:p:301-318
    DOI: 10.1007/s10058-003-0104-0
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    File URL: http://hdl.handle.net/10.1007/s10058-003-0104-0
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    Cited by:

    1. Patrick GIANFALDONI & Pierre-Henri MORAND, 2015. "Incentives, Procurement and Regulation of Work Integration Social Enterprises in France: Old Ideas for New Firms?," Annals of Public and Cooperative Economics, Wiley Blackwell, vol. 86(2), pages 199-219, June.
    2. Edquist , Charles & Zabala-Iturriagagoitia , Jon Mikel, 2012. "Why Pre-Commercial Procurement is notInnovation Procurement," Papers in Innovation Studies 2012/11, Lund University, CIRCLE - Center for Innovation, Research and Competences in the Learning Economy.
    3. repec:kap:jtecht:v:42:y:2017:i:5:d:10.1007_s10961-016-9477-4 is not listed on IDEAS
    4. François MARÉCHAL & Pierre-Henri MORAND, 2004. "What Allotment and Subcontracting in Procurement Bidding," Cahiers de Recherches Economiques du Département d'Econométrie et d'Economie politique (DEEP) 04.06, Université de Lausanne, Faculté des HEC, DEEP.
    5. Jelena Budak & Edo Rajh, 2014. "The Public Procurement System: A Business Sector Perspective," Working Papers 1401, The Institute of Economics, Zagreb.

    More about this item

    Keywords

    Auctions; SMEs; procurement; discrimination; moral hazard;

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