Dual Sourcing under Risky Public Procurement

Vanessa Valero

Annals of Economics and Statistics, 2016, issue 121-122, 25-44

Abstract: This paper examines the provision of a public service subject to a risk of disruption. To hedge against this risk, a public authority may use a dual sourcing policy. Instead of awarding the production to one supplier, it may split it between two suppliers. If the primary supplier is disrupted, the production may still be provided by the secondary supplier. However, dual sourcing increases the procurement cost, since the secondary supplier might be more expensive than the primary one. The public authority thus faces a trade-off when deciding upon its procurement policy. This trade-off is analysed under asymmetry of information on the secondary supplier's cost. We therefore determine the choice of the appropriate set of suppliers and the quantity to be produced by each selected supplier. We then extend our model by allowing the primary supplier to exert an effort to reduce its probability of disruption. Finally, our model is extended to consider the influence of lobbying on the public authority's choice of procurement policy.

Keywords: Public Procurement; Dual Sourcing; Risk of Disruption. (search for similar items in EconPapers)
JEL-codes: D81 D82 H41 H57 (search for similar items in EconPapers)
Date: 2016
References: Add references at CitEc
Citations:

Downloads: (external link)
http://www.jstor.org/stable/10.15609/annaeconstat2009.121-122.25 (text/html)

Related works:
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:adr:anecst:y:2016:i:121-122:p:25-44

DOI: 10.15609/annaeconstat2009.121-122.25

Access Statistics for this article

Annals of Economics and Statistics is currently edited by Laurent Linnemer

More articles in Annals of Economics and Statistics from GENES Contact information at EDIRC.
Bibliographic data for series maintained by Secretariat General () and Laurent Linnemer ().