Public Procurement Under Limited Liability

Andreas R. Engel () and Achim Wambach
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Andreas R. Engel: TWS Partners, Munich

Rivista di Politica Economica, 2006, vol. 96, issue 1, 13-40

Abstract: Public procurement faces the risk that the contractor goes bankrupt before the completion of the work. The possibility to declare bankruptcy makes the contractors behave more aggressively.This leads to abnormally low tenders and to the break-down of revenue equivalence. Upon this result we investigate frequently used public procurement methods that were designed to avoid the bankruptcy of the winning contractor. We show that the averagebid-method or methods that exclude the lowest offer fare quite badly. We also show that — in contrast to standard auction theory — multi-sourcing, rationing and other means to soften competition may fare better than a standard auction.

JEL-codes: D44 D45 D82 G33 H57 (search for similar items in EconPapers)
Date: 2006
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Citations: View citations in EconPapers (2)

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