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Self-Correcting Mechanisms in Public Procurement: Why Award and Contract Should be Separated

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  • Bös, Dieter
  • Kolmar, Martin

Abstract

In public procurement a temporal separation of award and actual contracting can frequently be observed. In this paper we give an explanation for this institutional setting. For incomplete procurement contracts we show that such a separation may increase efficiency. We show that efficiency can be increased by post-award, pre-contract negotiations between the award-winning seller and one of the `losing' sellers. Surprisingly, the efficiency gains can be higher if the award is given to a seller with a lower reputation for quality instead of to a seller with higher reputation. Under certain conditions post-award, pre-contract rent-seeking activities also increase efficiency. This is always the case if the procurement agency is corrupt, but may also occur in the case of lobbying.

Suggested Citation

  • Bös, Dieter & Kolmar, Martin, 2000. "Self-Correcting Mechanisms in Public Procurement: Why Award and Contract Should be Separated," Bonn Econ Discussion Papers 5/2000, University of Bonn, Bonn Graduate School of Economics (BGSE).
    • Handle: RePEc:zbw:bonedp:52000
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    References listed on IDEAS

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    More about this item

    Keywords

    Procurement; Incomplete contracts; lobbying; corruption;
    All these keywords.

    JEL classification:

    • D23 - Microeconomics - - Production and Organizations - - - Organizational Behavior; Transaction Costs; Property Rights
    • H57 - Public Economics - - National Government Expenditures and Related Policies - - - Procurement
    • L51 - Industrial Organization - - Regulation and Industrial Policy - - - Economics of Regulation

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