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Government contracting options: A model and application

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  • Edward Keating

Abstract

This paper models and simulates a government-contractor principal-agent weapon system repair model. Insights are derived as to how government repair contracts should be constructed so as to induce optimal contractor behavior. The paper's general conclusion is that the best contracting approach combines a lump-sum payment that does not vary with the number of units repaired, expensive item cost-sharing, and a contractor-provided availability guarantee. Provided there is intercontractor competition, this type of contract performs well even if the government is poorly informed about weapon system break patterns or repair costs.

Suggested Citation

  • Edward Keating, 1999. "Government contracting options: A model and application," Defence and Peace Economics, Taylor & Francis Journals, vol. 10(2), pages 191-223.
    • Handle: RePEc:taf:defpea:v:10:y:1999:i:2:p:191-223
    DOI: 10.1080/10430719908404923
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    References listed on IDEAS

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    1. Jonathan S. Feinstein & Edward G. Keating, 1992. "An Economic Analysis of Life Care," NBER Working Papers 4155, National Bureau of Economic Research, Inc.
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