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Centralized vs. Decentralized Procurement: Does Dispersed Information Call for Decentralized Decision-Making

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  • Vagstad, S.

Abstract

Should the government procure equipment for its agencies or let them run their own procurement auctions? Suppose the agency has private information about product quality, but is inclined to favor local suppliers. Decentralization saves bureaucracy and "agency costs" (costs tied to truthful revelation of quality information), but leads to biased decisions (a discriminatory auction). I show that the costs accociated with discrimination may increase when the quality differences increase.

Suggested Citation

  • Vagstad, S., 1997. "Centralized vs. Decentralized Procurement: Does Dispersed Information Call for Decentralized Decision-Making," Norway; Department of Economics, University of Bergen 1497, Department of Economics, University of Bergen.
    • Handle: RePEc:fth:bereco:1497
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    Cited by:

    1. Ligia Melo Becerra, 2005. "Impacto De La Descentralización Fiscal Sobre La Educación Pública Colombiana," Borradores de Economia 2802, Banco de la Republica.
    2. Umar Altahtooh & Thamir Alaskar, 2018. "Understanding Relationship between Milestone and Decision-Making in Project Management: A Qualitative Study among Project Managers in Saudi Arabia," International Journal of Business and Management, Canadian Center of Science and Education, vol. 13(8), pages 184-184, June.
    3. Li, Jin & Shi, Victor, 2019. "The benefit of horizontal decentralization in durable good procurement," Omega, Elsevier, vol. 82(C), pages 13-23.
    4. Olga Chiappinelli, 2020. "Decentralization And Public Procurement Performance: New Evidence From Italy," Economic Inquiry, Western Economic Association International, vol. 58(2), pages 856-880, April.
    5. Anil Arya & Hans Frimor & Brian Mittendorf, 2015. "Decentralized Procurement in Light of Strategic Inventories," Management Science, INFORMS, vol. 61(3), pages 578-585, March.
    6. Ganuza, Juan-Jose & Hauk, Esther, 2004. "Economic integration and corruption," International Journal of Industrial Organization, Elsevier, vol. 22(10), pages 1463-1484, December.
    7. Becerra, Ligia Melo, 2004. "Intergovernmental fiscal relations : the Colombian case," Economics PhD Theses 0304, Department of Economics, University of Sussex Business School.
    8. Kvartiuk, Vasyl & Herzfeld, Thomas & Bukin, Eduard, 2022. "Decentralized public farmland conveyance: Rental rights auctioning in Ukraine," Land Use Policy, Elsevier, vol. 114(C).
    9. Munson, C.L. & Hu, J., 2010. "Incorporating quantity discounts and their inventory impacts into the centralized purchasing decision," European Journal of Operational Research, Elsevier, vol. 201(2), pages 581-592, March.
    10. Justin M. Stritch & Stuart Bretschneider & Nicole Darnall & Lily Hsueh & Yifan Chen, 2020. "Sustainability Policy Objectives, Centralized Decision Making, and Efficiency in Public Procurement Processes in U.S. Local Governments," Sustainability, MDPI, vol. 12(17), pages 1-17, August.
    11. Simona Baldi & Davide Vannoni, 2017. "The impact of centralization on pharmaceutical procurement prices: the role of institutional quality and corruption," Regional Studies, Taylor & Francis Journals, vol. 51(3), pages 426-438, March.
    12. Simona Baldi & Davide Vannoni, 2014. "The Impact of Centralization, Corruption and Institutional Quality on Procurement Prices: An Application to Pharmaceutical Purchasing in Italy," Carlo Alberto Notebooks 379, Collegio Carlo Alberto.

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    More about this item

    Keywords

    INCENTIVES ; CONTRACTS ; AUCTIONS ; DISCRIMINATION;
    All these keywords.

    JEL classification:

    • D44 - Microeconomics - - Market Structure, Pricing, and Design - - - Auctions
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • L51 - Industrial Organization - - Regulation and Industrial Policy - - - Economics of Regulation
    • R38 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Real Estate Markets, Spatial Production Analysis, and Firm Location - - - Government Policy

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