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Centralized vs. decentralized procurement: Does dispersed information call for decentralized decision-making?

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  • Vagstad, Steinar

Abstract

Should the government procure equipment for its agencies or let them run their own procurement auctions? Suppose the agency has private information about product quality, but is inclined to favor local suppliers. Decentralization saves bureaucracy and "agency costs" (costs tied to truthful revelation of quality information), but leads to biased decisions (a discriminatory auction). I show that the costs accociated with discrimination may increase when the quality differences increase.
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  • Vagstad, Steinar, 2000. "Centralized vs. decentralized procurement: Does dispersed information call for decentralized decision-making?," International Journal of Industrial Organization, Elsevier, vol. 18(6), pages 949-963, August.
    • Handle: RePEc:eee:indorg:v:18:y:2000:i:6:p:949-963
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    Cited by:

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    More about this item

    JEL classification:

    • D44 - Microeconomics - - Market Structure, Pricing, and Design - - - Auctions
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • L51 - Industrial Organization - - Regulation and Industrial Policy - - - Economics of Regulation
    • R38 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Real Estate Markets, Spatial Production Analysis, and Firm Location - - - Government Policy

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