Procurement Contracts under Limited Liability

Sarah Parlane

Working Papers from College Dublin, Department of Political Economy-

Abstract: I analyze in this paper procurement from agents protected by limited liability. I model limited liability as a verifiable bargaining tool that enables the agents to induce renegotiation when the contracted price does not cover the project's cost. I show that the determination of the optimal mechanism is based on a trade-off between playing informal rents and renegotiation costs. When the renegotiation costs are sufficiently large the first price auction is optimal among efficient mechanisms.

Keywords: FINANCIAL; MARKET (search for similar items in EconPapers)
JEL-codes: D44 G1 (search for similar items in EconPapers)
Pages: 34 pages
Date: 1998
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Citations: View citations in EconPapers (8)

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Journal Article: Procurement Contracts under Limited Liability (2003)
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Persistent link: https://EconPapers.repec.org/RePEc:fth:dublec:98/3

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