Document de travail

Free Riding in Procurement Design

Klenio Barbosa

Résumé

Low-powered contracts do not provide proper incentives to reduce cost; still empirical studies show that they are quite pervasive in public and private procurement. This paper argues that low-powered contracts arise due to a free-riding problem when the contractor enjoys economies of scale/scope working for different buyers. A buyer, offering a procurement contract to the contractor, does not fully internalize that higher-powered incentives provide cost reduction in the contractor's activities, benefiting other buyers. As a result, buyers offer lower-powered contracts than what would be designed by cooperative buyers. Strikingly, the higher the contractor's benefits from economies of scope/scale are, the lower the power of the procurement contracts will be. In addition, laws which force buyers to award fixed-price contracts can be welfare-enhancing.

Mots-clés

free-riding; procurement; multibuyers;

Codes JEL

  • H57: Procurement
  • L24: Contracting Out • Joint Ventures • Technology Licensing

Référence

Klenio Barbosa, « Free Riding in Procurement Design », TSE Working Paper, n° 09-128, décembre 2009.

Voir aussi

Publié dans

TSE Working Paper, n° 09-128, décembre 2009