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Bureaucrats and Public Procurement

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  • Dieter Bös

Abstract

This paper deals with a Niskanen type of public-procurement agency. It is shown that the procurement game should be separated into an investment game and a project game, the first game to be played before nature determines the actual realizations of benefit and costs of the project, the second game to be played afterward. In the first game the relationship-specific investments of agency and seller are determined, in the second game the decision on the production of the project is taken. In contrast to many other incomplete-contract papers, in our Niskanen setting it is meaningless to write one and only one contract which refers to both investment and production. Welfare-optimal procurement of the project can be attained under relatively weak assumptions; welfare-optimal investments of the seller (and only of the seller) may result under special circumstances; welfare-optimal investments of both agency and seller cannot be reached.

Suggested Citation

  • Dieter Bös, "undated". "Bureaucrats and Public Procurement," EPRU Working Paper Series 01-11, Economic Policy Research Unit (EPRU), University of Copenhagen. Department of Economics.
    • Handle: RePEc:kud:epruwp:01-11
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    File URL: http://web.econ.ku.dk/epru/files/wp/WEB-blaa-2001-11.pdf
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    References listed on IDEAS

    as
    1. Williamson, Oliver E, 1979. "Transaction-Cost Economics: The Governance of Contractural Relations," Journal of Law and Economics, University of Chicago Press, vol. 22(2), pages 233-261, October.
    2. Eric Maskin & Jean Tirole, 1999. "Unforeseen Contingencies and Incomplete Contracts," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 66(1), pages 83-114.
    3. Nöldeke, Georg & Schmidt, Klaus M., 1995. "Option contracts and renegotiation," Munich Reprints in Economics 19329, University of Munich, Department of Economics.
    4. Georg Noldeke & Klaus M. Schmidt, 1995. "Option Contracts and Renegotiation: A Solution to the Hold-Up Problem," RAND Journal of Economics, The RAND Corporation, vol. 26(2), pages 163-179, Summer.
    5. Klein, Benjamin & Crawford, Robert G & Alchian, Armen A, 1978. "Vertical Integration, Appropriable Rents, and the Competitive Contracting Process," Journal of Law and Economics, University of Chicago Press, vol. 21(2), pages 297-326, October.
    6. Niskanen, William A, 1975. "Bureaucrats and Politicians," Journal of Law and Economics, University of Chicago Press, vol. 18(3), pages 617-643, December.
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    Cited by:

    1. Vasilev, Aleksandar, 2013. "Essays on Real Business Cycle Modeling and the Public Sector," EconStor Theses, ZBW - Leibniz Information Centre for Economics, number 130522, September.

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