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Bundling Decision in Procurement Auctions with Risk-Averse Suppliers

Listed author(s):
  • Takeshi Nishimura
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    In a two-stage procurement model, we compare two contracting schemes: bundling and unbundling. They differ in whether two sequential tasks of investment and service provision are bundled or not in the auction. We show that while unbundling causes underinvestment in cost reduction and bundling causes the ex post inefficiency of trade, each scheme imposes some forms of risk on the suppliers. The comparative statics results show that as the investment is more costly and/or a common cost component is more risky, bundling becomes less attractive to both the buyer and society.

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    File URL: http://gcoe.ier.hit-u.ac.jp/research/discussion/2008/pdf/gd12-237.pdf
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    Paper provided by Institute of Economic Research, Hitotsubashi University in its series Global COE Hi-Stat Discussion Paper Series with number gd12-237.

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    Date of creation: Jul 2012
    Handle: RePEc:hst:ghsdps:gd12-237
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    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.
    2. John Bennett & Elisabetta Iossa, 2002. "Building and Managing Facilities for Public Services," Economics and Finance Discussion Papers 02-08, Economics and Finance Section, School of Social Sciences, Brunel University.
    3. Maskin, Eric & Tirole, Jean, 2006. "Public-Private Partnerships and Government Spending Limits," IDEI Working Papers 439, Institut d'Économie Industrielle (IDEI), Toulouse.
    4. David Martimort & Jérôme Pouyet, 2008. "To build or not to build: Normative and positive theories of public-private partnerships," Post-Print halshs-00754298, HAL.
    5. Schmitz, Patrick W, 2005. "Allocating Control in Agency Problems with Limited Liability and Sequential Hidden Actions," CEPR Discussion Papers 5145, C.E.P.R. Discussion Papers.
    6. Hoppe, Eva I & Schmitz, Patrick W, 2010. "Public-private partnerships versus traditional procurement: Innovation incentives and information gathering," CEPR Discussion Papers 7681, C.E.P.R. Discussion Papers.
    7. Oliver Hart, 2003. "Incomplete Contracts and Public Ownership: Remarks, and an Application to Public-Private Partnerships," Economic Journal, Royal Economic Society, vol. 113(486), pages 69-76, March.
    8. Yescombe, E. R. & Yescombe, E. R., 2007. "Public-Private Partnerships," Elsevier Monographs, Elsevier, edition 1, number 9780750680547.
    9. Krishna, Vijay, 2009. "Auction Theory," Elsevier Monographs, Elsevier, edition 2, number 9780123745071.
    10. Holt, Charles A, Jr, 1980. "Competitive Bidding for Contracts under Alternative Auction Procedures," Journal of Political Economy, University of Chicago Press, vol. 88(3), pages 433-445, June.
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