Competition under incomplete contracts and the design of procurement policies

Rodrigo Carril, Andres Gonzalez-Lira and Michael S. Walker

Economics Working Papers from Department of Economics and Business, Universitat Pompeu Fabra

Abstract: We study the effects of intensifying competition for contracts in the context of U.S. Defense procurement. Conceptually, opening contracts up to bids by more participants leads to lower awarding prices, but may hinder buyers' control over non-contractible characteristics of prospective contractors. Leveraging a regulation that mandates agencies to publicize certain contract opportunities, we document that expanding the set of bidders reduces award prices, but deteriorates post-award performance, resulting in more cost overruns and delays. To further study the scope of this tension, we develop and estimate a model in which the buyer endogenously chooses the intensity of competition, invited sellers decide on auction participation and bidding, and the winner executes the contract ex-post. Model estimates indicate substantial heterogeneity in ex-post performance across contractors, and show that simple adjustments to the current regulation that account for adverse selection could provide 2 percent of savings in procurement spending, or $104 million annually

Keywords: Procurement; competition; auctions; incomplete contracts (search for similar items in EconPapers)
JEL-codes: D22 D44 D73 H57 L13 L14 (search for similar items in EconPapers)
Date: 2022-03
New Economics Papers: this item is included in nep-com, nep-cta, nep-des, nep-ind and nep-reg
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (13)

Downloads: (external link)
https://econ-papers.upf.edu/papers/1824.pdf Whole Paper (application/pdf)

Related works:
Working Paper: Competition under Incomplete Contracts and the Design of Procurement Policies (2022)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:upf:upfgen:1824

Access Statistics for this paper

More papers in Economics Working Papers from Department of Economics and Business, Universitat Pompeu Fabra
Bibliographic data for series maintained by ( this e-mail address is bad, please contact ).