Pairing provision price and default remedy: optimal two‐stage procurement with private R&D efficiency

Bin Liu and Jingfeng Lu

RAND Journal of Economics, 2018, vol. 49, issue 3, 619-655

Abstract: This article studies cost‐minimizing two‐stage procurement with Research and Development (R&D). The principal wishes to procure a product from an agent. At the first stage, the agent can conduct R&D to discover a more cost‐efficient production technology. First‐stage R&D efficiency and effort and the realized second‐stage production cost are the agent's private information. The optimal two‐stage mechanism is implemented by a menu of single‐stage contracts, each specifying a fixed provision price and remedy paid by a defaulting agent. A higher delivery price is paired with a higher default remedy, and a more efficient type opts for a higher price and higher remedy.

Date: 2018
References: Add references at CitEc
Citations: View citations in EconPapers (5)

Downloads: (external link)
https://doi.org/10.1111/1756-2171.12247

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:bla:randje:v:49:y:2018:i:3:p:619-655

Ordering information: This journal article can be ordered from
http://www.blackwell ... al.asp?ref=0741-6261

Access Statistics for this article

RAND Journal of Economics is currently edited by James Hosek

More articles in RAND Journal of Economics from RAND Corporation Contact information at EDIRC.
Bibliographic data for series maintained by Wiley Content Delivery ().