Procurement Contracts under Limited Liability

Sarah Parlane

The Economic and Social Review, 2003, vol. 34, issue 1, 1–21

Abstract: This paper analyses procurement when contractors have limited liability and when the sponsor cannot commit to any specific form of future negotiation. It shows that introducing limited liability enhances competition and thus the likelihood of bankruptcy. Among efficient auctions in which only the winner gets paid, the commonly used first price auction is shown to give the lowest probability of bankruptcy. Finally, it shows that the characterisation of a mechanism minimising the project’s cost results from trading-off bankruptcy costs with informational rents.

Date: 2003
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Citations: View citations in EconPapers (17)

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http://www.esr.ie/Vol34_1Parlane.pdf First version, 2003 (application/pdf)

Related works:
Working Paper: Procurement Contracts under Limited Liability (1998)
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Persistent link: https://EconPapers.repec.org/RePEc:eso:journl:v:34:y:2003:i:1:p:1-21

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