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Self-Correcting Mechanisms in Public Procurement: Why Award and Contract Should be Separated

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  • Dieter Boes
  • Martin Kolmar

Abstract

In public procurement a temporal separation of award and actual contracting can frequently be observed. In this paper we give an explanation for this institutional setting. For incomplete procurement contracts we show that such a separation may increase efficiency. We show that efficiency can be increased by post-award, pre-contract negotiations between the award-winning seller and one of the 'losing' sellers. Surprisingly, the efficiency gains can be higher if the award is given to a seller with a lower reputation for quality instead of to a seller with higher reputation. Under certain conditions post-award, pre-contract rent-seeking activities also increase efficiency. This is always the case if the procurement agency is corrupt, but may also occur in the case of lobbying.

Suggested Citation

  • Dieter Boes & Martin Kolmar, 2000. "Self-Correcting Mechanisms in Public Procurement: Why Award and Contract Should be Separated," CESifo Working Paper Series 302, CESifo Group Munich.
  • Handle: RePEc:ces:ceswps:_302
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    File URL: http://www.cesifo-group.de/DocDL/cesifo_wp302.pdf
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    References listed on IDEAS

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    13. Nitzan, Shmuel, 1994. "Modelling rent-seeking contests," European Journal of Political Economy, Elsevier, vol. 10(1), pages 41-60, May.
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    Cited by:

    1. Dieter Bös, 1999. "Inefficient R&D in Public Procurement: Negative Consequences of a Separation between Award and Actual Contract," CESifo Working Paper Series 208, CESifo Group Munich.

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