Incomplete contracts in dynamic procurement

Vitali Gretschko and Martin Pollrich

No 19-040, ZEW Discussion Papers from ZEW - Leibniz Centre for European Economic Research

Abstract: We analyze the problem of a buyer who purchases a long-term project from one of several suppliers. A changing state of the world influences the costs of the suppliers. Complete contracts conditioning on all future realizations of the state are infeasible. We show that contractual incompleteness comes without a cost. The buyer achieves the same surplus with complete and incomplete contracts. The key insight is that the allocation prescribed by optimal complete contracts is sequentially optimal with incomplete contracts if the buyer does not receive too much information ex-interim. We show that the English auction restricts the information optimally.

Keywords: incomplete contracts; repeated relationships; procurement; commitment (search for similar items in EconPapers)
JEL-codes: D44 D82 H57 (search for similar items in EconPapers)
Date: 2019
New Economics Papers: this item is included in nep-com, nep-mic and nep-reg
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:zbw:zewdip:19040

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