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Incomplete Procurement Contracting with a Risk-Averse Agent

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  • Takeshi Nishimura

Abstract

In a two-stage procurement model, we compare two types of fixed-price contracting schemes, bundling and unbundling. The buyer's choice of scheme involves an intertemporal tradeoff: providing incentives for cost-reducing investment and sharing production-cost risk between the risk-neutral buyer and the risk-averse supplier. The main result shows that unbundling outperforms bundling when both the supplier and the entrant in ex post competitive bidding confront an aggregate risk, and the externality of the supplier's investment on the entrant's production cost is low.

Suggested Citation

  • Takeshi Nishimura, 2011. "Incomplete Procurement Contracting with a Risk-Averse Agent," Global COE Hi-Stat Discussion Paper Series gd10-165, Institute of Economic Research, Hitotsubashi University.
  • Handle: RePEc:hst:ghsdps:gd10-165
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    File URL: http://gcoe.ier.hit-u.ac.jp/research/discussion/2008/pdf/gd10-165.pdf
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    1. Masaki Nakabayashi, 2008. "Rise of the Japanese fiscal state," Discussion Papers in Economics and Business 08-12, Osaka University, Graduate School of Economics and Osaka School of International Public Policy (OSIPP).
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    Cited by:

    1. Hoppe, Eva I. & Kusterer, David J. & Schmitz, Patrick W., 2013. "Public–private partnerships versus traditional procurement: An experimental investigation," Journal of Economic Behavior & Organization, Elsevier, vol. 89(C), pages 145-166.

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