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

  • Dieter Boes
  • Martin Kolmar

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.

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File URL: http://www.cesifo-group.de/portal/page/portal/DocBase_Content/WP/WP-CESifo_Working_Papers/wp-cesifo-2000/wp-cesifo-2000-06/cesifo_wp302.pdf
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Paper provided by CESifo Group Munich in its series CESifo Working Paper Series with number 302.

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Date of creation: 2000
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Handle: RePEc:ces:ceswps:_302
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  10. Baik, Kyung H & Shogren, Jason F, 1992. "Strategic Behavior in Contests: Comment," American Economic Review, American Economic Association, vol. 82(1), pages 359-62, March.
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  14. Körber, Achim & Kolmar, Martin, 1996. "To fight or not to fight? An analysis of submission, struggle, and the design of contests," Discussion Papers, Series II 301, University of Konstanz, Collaborative Research Centre (SFB) 178 "Internationalization of the Economy".
  15. Nitzan, Shmuel, 1994. "Modelling rent-seeking contests," European Journal of Political Economy, Elsevier, vol. 10(1), pages 41-60, May.
  16. Bos, Dieter & Lulfesmann, Christoph, 1996. " The Hold-Up Problem in Government Contracting," Scandinavian Journal of Economics, Wiley Blackwell, vol. 98(1), pages 53-74, March.
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