Auctioning incentive contracts; application to welfare-to-work programs

Pierre Koning and Sander Onderstal

No 38, CPB Discussion Paper from CPB Netherlands Bureau for Economic Policy Analysis

Abstract: This paper applies the theory of auctioning incentive contracts to welfare-to-work programs. In several countries, the government procures welfare-to-work projects to employment service providers. This paper applies the theory of auctioning incentive contracts to welfare-to-work programs. In several countries, the government procures welfare-to-work projects to employment service providers. In doing so, the government trades off adverse selection (the winning provider is not the most efficient one) and moral hazard (the winning provider shirks in his effort to reintegrate unemployed people). We compare three simple auctions with the socially optimal mechanism and show that two of these auctions approximate the optimal mechanism if the number of providers is large. Using simulations, we observe that competition between three bidders is already sufficient for the outcome of these auctions to reach 95% of the optimal level of social welfare.

JEL-codes: D44 D82 J68 (search for similar items in EconPapers)
Date: 2004-08
New Economics Papers: this item is included in nep-cmp and nep-mic
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:cpb:discus:38

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