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To allot or not to allot public services? An incomplete contract approach

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  • Julie Brux
  • Claudine Desrieux

Abstract

Using an incomplete contract framework, we analyze the consequences of allotment in public procurement. Allotment aims at dividing a public service into several lots that can be awarded to different operators. This increases the number of bidders during the competitive tendering, as well as it reduces the size of the service managed by each operator. We model the impacts of allotment both on price and quality of public services provided under public procurement. When the quality of services depends on non-contractible efforts made by the operators during the execution of the contract, our results show that (1) the operators have higher incentives to make non-contractible efforts when there is no allotment, and that (2) allotment does not maximize the joint payoffs of the public and private parties (i.e. the total surplus), but mainly benefits public authorities representing the users of the service. Copyright Springer Science+Business Media, LLC 2014

Suggested Citation

  • Julie Brux & Claudine Desrieux, 2014. "To allot or not to allot public services? An incomplete contract approach," European Journal of Law and Economics, Springer, vol. 37(3), pages 455-476, June.
    • Handle: RePEc:kap:ejlwec:v:37:y:2014:i:3:p:455-476
    DOI: 10.1007/s10657-012-9349-9
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    Cited by:

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    3. Schmitz, Patrick W., 2021. "Optimal ownership of public goods under asymmetric information," Journal of Public Economics, Elsevier, vol. 198(C).
    4. Michel Nakhla, 2016. "Innovative regulations, incomplete contracts and ownership structure in the water utilities," European Journal of Law and Economics, Springer, vol. 42(3), pages 445-469, December.
    5. Schmitz, Patrick W., 2023. "The proper scope of government reconsidered: Asymmetric information and incentive contracts," European Economic Review, Elsevier, vol. 157(C).

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    More about this item

    Keywords

    Public procurement; Allotment; Incomplete contracts; Public services; L33; L22; L24; L11; K12;
    All these keywords.

    JEL classification:

    • L33 - Industrial Organization - - Nonprofit Organizations and Public Enterprise - - - Comparison of Public and Private Enterprise and Nonprofit Institutions; Privatization; Contracting Out
    • L22 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Organization and Market Structure
    • L24 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Contracting Out; Joint Ventures
    • L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms
    • K12 - Law and Economics - - Basic Areas of Law - - - Contract Law

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