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A Contest Model of Liberalizing Government Procurements

  • Ngo Van Long


    (Department of Economics, McGill University, Montreal)

  • Frank StŠhler


    (Department of Economics, University of Otago)

This paper models government procurements as a contest among domestic firms, and - in case of liberalization - domestic and foreign firms. Liberalizing procurements reduces wasteful domestic lobbying but also increases the likelihood that a foreign firm will capture the rent. We show that the domestic welfare change is not monotonic in the foreign firmsÕ abilities. Domestic welfare increases only if the gross surplus generated by foreign firms is sufficiently large. Furthermore, we show that, from the global welfare point of view, domestically optimal liberalization policies can be either excessive or too restrictive.

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Paper provided by University of Otago, Department of Economics in its series Working Papers with number 0803.

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Length: 20 pages
Date of creation: Jan 2008
Date of revision: Jan 2008
Handle: RePEc:otg:wpaper:0803
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  1. Auriol, E., 1998. "Corruption in Procurement and Public Purchase," G.R.E.Q.A.M. 98a29, Universite Aix-Marseille III.
  2. Richard Cornes & Roger Hartley, 2005. "Asymmetric contests with general technologies," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 26(4), pages 923-946, November.
  3. Evenett, Simon J. & Hoekman, Bernard M., 2004. "Government procurement : Market access, transparency, and multilateral trade rules," Policy Research Working Paper Series 3195, The World Bank.
  4. Nti, Kofi O, 1999. "Rent-Seeking with Asymmetric Valuations," Public Choice, Springer, vol. 98(3-4), pages 415-30, March.
  5. McAfee, R. Preston & McMillan, John, 1989. "Government procurement and international trade," Journal of International Economics, Elsevier, vol. 26(3-4), pages 291-308, May.
  6. Michel Mougeot & Florence Naegelen, 2005. "A political economy analysis of preferential public procurement policies," Post-Print hal-00448920, HAL.
  7. Federico Trionfetti, 2000. "Discriminatory Public Procurement and International Trade," The World Economy, Wiley Blackwell, vol. 23(1), pages 57-76, 01.
  8. Nitzan, Shmuel, 1994. "Modelling rent-seeking contests," European Journal of Political Economy, Elsevier, vol. 10(1), pages 41-60, May.
  9. James A. Brander & Barbara J. Spencer, 1980. "Tariffs and the Extraction of Foreign Monopoly Rents under Potential Entry," Working Papers 414, Queen's University, Department of Economics.
  10. Vagstad, Steinar, 1995. "Promoting fair competition in public procurement," Journal of Public Economics, Elsevier, vol. 58(2), pages 283-307, October.
  11. Branco, Fernando, 1994. "Favoring domestic firms in procurement contracts," Journal of International Economics, Elsevier, vol. 37(1-2), pages 65-80, August.
  12. Charles Rowley & Anne Rathbone, 2004. "Political Economy of Antitrust," Chapters, in: The International Handbook of Competition, chapter 6 Edward Elgar Publishing.
  13. Stein, William E, 2002. "Asymmetric Rent-Seeking with More Than Two Contestants," Public Choice, Springer, vol. 113(3-4), pages 325-36, December.
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