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Monitoring Competitive Bidding in the Public Sector

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Abstract

This paper investigates the impact of program budget size on monitoring and competitive bidding in the public sector. A sequential game is developed involving a ministry and bureau strategically interacting in the provision of a public sector good. The ministry copes with imperfect information about the bureau's costs by choosing to monitor or to conduct a first price sealed bid auction between the bureau and a set of firms. In this respect, this study represents an extension of the Niskanen budget maximizing bureau framework. The results predict that the ministry will tend to conduct competitive bidding at low and high levels of budgetary allocation. Otherwise, the bureau is monitored. Second, increases in the budget expand the range of costs over which the bureau can win the competitive bid. Third, increases in management compensation tends to reduce the spread between the bureau's costs and its reported cost for providing the public sector good.

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  • Gervan Fearon, 1998. "Monitoring Competitive Bidding in the Public Sector," University of Western Ontario, Departmental Research Report Series 9810, University of Western Ontario, Department of Economics.
    • Handle: RePEc:uwo:uwowop:9810
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    2. Chris Papageorgiou & Fidel Pérez Sebastián, 2001. "Growth Miracles Reexamined," Working Papers. Serie AD 2001-03, Instituto Valenciano de Investigaciones Económicas, S.A. (Ivie).
    3. Paul Wonnacott & Ronald J. Wonnacott, 1999. "An Economic Theory of the GATT: A Generalization," University of Western Ontario, Departmental Research Report Series 9901, University of Western Ontario, Department of Economics.
    4. Restuccia, Diego & Urrutia, Carlos, 2001. "Relative prices and investment rates," Journal of Monetary Economics, Elsevier, vol. 47(1), pages 93-121, February.
    5. Alberto BUCCI, 2002. "Market Power, Human Capital and Growth," LIDAM Discussion Papers IRES 2002012, Université catholique de Louvain, Institut de Recherches Economiques et Sociales (IRES).

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