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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.

Suggested Citation

  • Ngo Van Long & Frank StŠhler, 2008. "A Contest Model of Liberalizing Government Procurements," Working Papers 0803, University of Otago, Department of Economics, revised Jan 2008.
  • Handle: RePEc:otg:wpaper:0803

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    References listed on IDEAS

    1. Evenett, Simon J. & Hoekman, Bernard M., 2005. "Government procurement: market access, transparency, and multilateral trade rules," European Journal of Political Economy, Elsevier, vol. 21(1), pages 163-183, March.
    2. James A. Brander & Barbara J. Spencer, 1981. "Tariffs and the Extraction of Foreign Monopoly Rents under Potential Entry," Canadian Journal of Economics, Canadian Economics Association, vol. 14(3), pages 371-389, August.
    3. Federico Trionfetti, 2000. "Discriminatory Public Procurement and International Trade," The World Economy, Wiley Blackwell, vol. 23(1), pages 57-76, January.
    4. Mougeot, Michel & Naegelen, Florence, 2005. "A political economy analysis of preferential public procurement policies," European Journal of Political Economy, Elsevier, vol. 21(2), pages 483-501, June.
    5. Auriol, Emmanuelle, 2006. "Corruption in procurement and public purchase," International Journal of Industrial Organization, Elsevier, vol. 24(5), pages 867-885, September.
    6. 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.
    7. Stein, William E, 2002. "Asymmetric Rent-Seeking with More Than Two Contestants," Public Choice, Springer, vol. 113(3-4), pages 325-336, December.
    8. McAfee, R. Preston & McMillan, John, 1989. "Government procurement and international trade," Journal of International Economics, Elsevier, vol. 26(3-4), pages 291-308, May.
    9. Nti, Kofi O, 1999. "Rent-Seeking with Asymmetric Valuations," Public Choice, Springer, vol. 98(3-4), pages 415-430, March.
    10. Branco, Fernando, 1994. "Favoring domestic firms in procurement contracts," Journal of International Economics, Elsevier, vol. 37(1-2), pages 65-80, August.
    11. Vagstad, Steinar, 1995. "Promoting fair competition in public procurement," Journal of Public Economics, Elsevier, vol. 58(2), pages 283-307, October.
    12. Charles Rowley & Anne Rathbone, 2004. "Political Economy of Antitrust," Chapters,in: The International Handbook of Competition, chapter 6 Edward Elgar Publishing.
    13. Nitzan, Shmuel, 1994. "Modelling rent-seeking contests," European Journal of Political Economy, Elsevier, vol. 10(1), pages 41-60, May.
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    Cited by:

    1. Kräkel, Matthias, 2012. "Competitive careers as a way to mediocracy," European Journal of Political Economy, Elsevier, vol. 28(1), pages 76-87.
    2. repec:elg:eechap:15325_3 is not listed on IDEAS
    3. Van Long, Ngo, 2013. "The theory of contests: A unified model and review of the literature," European Journal of Political Economy, Elsevier, vol. 32(C), pages 161-181.
    4. Toke Aidt & Uk Hwang, 2014. "To Ban or Not to Ban: Foreign Lobbying and Cross National Externalities," Cambridge Working Papers in Economics 1402, Faculty of Economics, University of Cambridge.
    5. Kenji Fujiwara & Ngo Van Long, 2012. "Welfare Effects of Reducing Home Bias in Government Procurements: A Dynamic Contest Model," Review of Development Economics, Wiley Blackwell, vol. 16(1), pages 137-147, February.
    6. repec:elg:eechap:15325_23 is not listed on IDEAS

    More about this item


    Trade liberalization; trade in services; government procurements.;

    JEL classification:

    • F12 - International Economics - - Trade - - - Models of Trade with Imperfect Competition and Scale Economies; Fragmentation
    • F13 - International Economics - - Trade - - - Trade Policy; International Trade Organizations
    • H57 - Public Economics - - National Government Expenditures and Related Policies - - - Procurement


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