Procurement with specialized firms
This paper analyzes optimal procurement mechanisms in a setting where the procurement agency has incomplete information concerning the firms' cost functions and cares about quality as well as price. Low type firms are cheaper than high type firms in providing low quality but more expensive when providing high quality. Hence, each type is specialized in a certain quality level. We show that this specialization leads to a bunching of types on profits, i.e. a range of firms with different cost functions receives zero profits and therefore no informational rents. If first best welfare is monotone in the efficiency parameter, the optimal mechanism can be implemented by a simple auction. If first best welfare is U-shaped in type, the optimal mechanism is not efficient in the sense that types providing a lower second best welfare win against types providing a higher second best welfare.
|Date of creation:||Dec 2011|
|Date of revision:|
|Contact details of provider:|| Postal: Centre for Economic Policy Research, 77 Bastwick Street, London EC1V 3PZ.|
Phone: 44 - 20 - 7183 8801
Fax: 44 - 20 - 7183 8820
|Order Information:|| Email: |
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- John Asker & Estelle Cantillon, 2008.
"Properties of Scoring Auctions,"
ULB Institutional Repository
2013/172674, ULB -- Universite Libre de Bruxelles.
- McAfee, R. Preston & McMillan, John, 1988. "Multidimensional incentive compatibility and mechanism design," Journal of Economic Theory, Elsevier, vol. 46(2), pages 335-354, December.
- Laffont, Jean-Jacques & Tirole, Jean, 1987.
"Auctioning Incentive Contracts,"
Journal of Political Economy,
University of Chicago Press, vol. 95(5), pages 921-37, October.
- Guesnerie, Roger & Laffont, Jean-Jacques, 1984. "A complete solution to a class of principal-agent problems with an application to the control of a self-managed firm," Journal of Public Economics, Elsevier, vol. 25(3), pages 329-369, December.
- Drew Fudenberg & Jean Tirole, 1991. "Game Theory," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262061414.
- Aloisio Araújo & Humberto Moreira, 2000.
"Adverse selection problems without the Spence-Mirrlees condition,"
Textos para discussão
424, Department of Economics PUC-Rio (Brazil).
- Araujo, Aloisio & Moreira, Humberto, 2010. "Adverse selection problems without the Spence-Mirrlees condition," Journal of Economic Theory, Elsevier, vol. 145(3), pages 1113-1141, May.
- Araújo, Aloísio Pessoa de & Moreira, Humberto Ataíde, 2000. "Adverse selection problems without the Spence-Mirrlees condition," Economics Working Papers (Ensaios Economicos da EPGE) 389, FGV/EPGE Escola Brasileira de Economia e Finanças, Getulio Vargas Foundation (Brazil).
- Araújo, Aloísio Pessoa de & Moreira, Humberto Ataíde, 2001. "Adverse selection problems without the spence-mirrlees condition," Economics Working Papers (Ensaios Economicos da EPGE) 425, FGV/EPGE Escola Brasileira de Economia e Finanças, Getulio Vargas Foundation (Brazil).
When requesting a correction, please mention this item's handle: RePEc:cpr:ceprdp:8704. 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.