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Optimal monitoring in dynamic procurement contracts

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  • Andreas Asseyer

    (Humboldt-Universitaet zu Berlin)

Abstract

Which information should government authorities monitor when they procure goods from private suppliers? I analyze this question in a principal-agent model of procurement with moral hazard concerning cost-reducing investments and dynamic adverse selection about investment cost and a production cost shock. The principal can monitor the investment, the shock, or both at a cost. I show that it is never optimal to monitor investment and shock. Monitoring investment is always at least as effective as monitoring the shock. The two instruments are equivalent if the level of investment cost is high. Monitoring may decrease efficiency in the optimal contract. Creation Date: 2015-06-17

Suggested Citation

  • Andreas Asseyer, "undated". "Optimal monitoring in dynamic procurement contracts," BDPEMS Working Papers 2015002, Berlin School of Economics.
    • Handle: RePEc:bdp:wpaper:2015002
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    References listed on IDEAS

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    Cited by:

    1. Suehyun Kwon, 2017. "Adverse Selection and Moral Hazard with Multidimensional Types," CESifo Working Paper Series 6631, CESifo.

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    More about this item

    Keywords

    procurement; monitoring; dynamic contracts;
    All these keywords.

    JEL classification:

    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • D86 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Economics of Contract Law
    • H57 - Public Economics - - National Government Expenditures and Related Policies - - - Procurement

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