A BUREAUCRAT'S PROCUREMENT STRATEGY: BUDGET CONSTRAINTS AND RATIONING

Signe ANTHON, Peter BOGETOFT and Bo Jellesmark Thorsen ()

Annals of Public and Cooperative Economics, 2007, vol. 78, issue 2, pages 221-244

Abstract: We investigate a bureaucratic principal responsible for the procurement of goods and services from private agents. The bureaucrat is evaluated on output and controlled by a limited budget. The agents maximize profit, have private information about variable production costs, and have positive outside options which are lost upon acceptance of a procurement contract. The setting is relevant for, e.g. governmental agencies. We show how this setup makes probabilistic rationing and overproduction for low-cost agents a useful tool for the bureaucrat. Copyright 2007 The Authors Journal compilation © CIRIEC 2007.

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