Procurement Contracts under Limited Liability
I analyze in this paper procurement from agents protected by limited liability. I model limited liability as a verifiable bargaining tool that enables the agents to induce renegotiation when the contracted price does not cover the project's cost. I show that the determination of the optimal mechanism is based on a trade-off between playing informal rents and renegotiation costs. When the renegotiation costs are sufficiently large the first price auction is optimal among efficient mechanisms.
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|Date of creation:||1998|
|Date of revision:|
|Contact details of provider:|| Postal: Ireland; University College Dublin, Department of Political Economy, Centre for Economic Research, Belfield, Dublin 4|
Fax: +353-1-283 0068
Web page: http://www.ucd.ie/economics/
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- Maskin, Eric S & Riley, John G, 1984.
"Optimal Auctions with Risk Averse Buyers,"
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"Procurement and Renegotiation,"
Journal of Political Economy,
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"Comparing Auctions for Risk Averse Buyers: A Buyer's Point of View,"
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- Steven A. Matthews, 1985. "Comparing Auctions for Risk Averse Buyers: A Buyer's Pointof View," Discussion Papers 664R, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
- Mark Armstrong, 2000. "Optimal Multi-Object Auctions," Review of Economic Studies, Oxford University Press, vol. 67(3), pages 455-481.
- Spulber, Daniel F, 1990. "Auctions and Contract Enforcement," Journal of Law, Economics and Organization, Oxford University Press, vol. 6(2), pages 325-44, Fall.
- Yossef Spiegel, 1996. "The Role of Debt in Procurement Contracts," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 5(3), pages 379-407, 09.
- Riordan, Michael H & Sappington, David E M, 1988. " Commitment in Procurement Contracting," Scandinavian Journal of Economics, Wiley Blackwell, vol. 90(3), pages 357-72.
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