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SMEs and public procurement policy


  • Pierre-Henri Morand



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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    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'économie 04.06, Université de Lausanne, Faculté des HEC, Département d’économie.
    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


    Auctions; SMEs; procurement; discrimination; moral hazard;


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