Competition under Incomplete Contracts and the Design of Procurement Policies

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

American Economic Review, 2026, vol. 116, issue 2, 535-81

Abstract: We study the effects of intensifying competition for contracts in the context of US Defense procurement. Leveraging a discontinuous 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 in terms of cost overruns and delays. We develop and estimate an auction model with endogenous entry and stochastic execution performance, in which the buyer endogenously chooses the intensity of competition. Model estimates indicate substantial heterogeneity in performance across contractors and show that simple adjustments to the current regulation could provide significant savings in procurement spending.

JEL-codes: D22 D24 D44 D82 D86 H56 H57 (search for similar items in EconPapers)
Date: 2026
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Related works:
Working Paper: Competition under Incomplete Contracts and the Design of Procurement Policies (2022)
Working Paper: Competition under incomplete contracts and the design of procurement policies (2022)
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DOI: 10.1257/aer.20221345

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