Public Procurement in Times of Crisis: The Bundling Decision Reconsidered

Patrick Schmitz

No 9676, CEPR Discussion Papers from Centre for Economic Policy Research

Abstract: The government wants two tasks to be performed. In each task, unobservable effort can be exerted by a wealth-constrained private contractor. If the government faces no binding budget constraints, it is optimal to bundle the tasks. The contractor in charge of both tasks then gets a bonus payment if and only if both tasks are successful. Yet, if the government has only a limited budget, it may be optimal to separate the tasks, so that there are two contractors each in charge of one task. In this case, high efforts in both tasks can be implemented with smaller bonus payments.

Keywords: Bundling; Limited liability; Moral hazard; Procurement contracts; Public goods provision (search for similar items in EconPapers)
JEL-codes: D86 H12 H57 L24 L33 (search for similar items in EconPapers)
Date: 2013-10
New Economics Papers: this item is included in nep-cta, nep-ind and nep-mic
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (22)

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Journal Article: Public procurement in times of crisis: The bundling decision reconsidered (2013)
Working Paper: Public Procurement in Times of Crisis: The Bundling Decision Reconsidered (2013)
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