Quality cut-offs in procurement auctions

Goswami, Mridu Prabal

doi:10.1016/j.econlet.2013.07.020

Cited by 1 publication

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“…The future extensions of this paper can be conducted in the following aspects. The first one is to consider the role of quality in public procurement (see e.g., Asker & Cantillon, 2008, 2010; Che, 1993, 2008; Dastidar & Mukherjee, 2014; Feinerman & Lipow, 2001; Ganuza & Pechlivanos, 2000; Goswami, 2013). Different types of agents may perform the same task with different qualities.…”

Section: Discussionmentioning

confidence: 99%

“…Inspired by the works of Schmitz (2013a) on public procurement and the works of Kwon (2006) on favoritism, this paper builds a principal-agent model with moral hazard to explain seeming favoritism in public procurement. 6 There are many studies focusing on moral hazard problems with a risk-neutral and wealth-constrained agent (see e.g., Crémer, 1995;Hoppe & Kusterer, 2011;Hoppe & Schmitz, 2010, 2013Innes, 1990;Laffont & Martimort, 2002;Ohlendorf & Schmitz, 2012;Pi, 2014Pi, , 2018Schmitz, 2005Schmitz, , 2013aSchmitz, , 2013b, but they neglect to focus their attention on favoritism in public procurement. During the course of building the theoretical models, we use public procurement in the sense of Schmitz and his coauthors (e.g., Hoppe & Schmitz, in press;Schmitz, 2013a), which means that the government delegates the task to a firm in case of a single task or that the government delegates the tasks to different firms in case of multiple tasks.…”

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An investigation of seeming favoritism in public procurement

2020

The Manchester School

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The existing literature holds that favoritism in public procurement is due to discrimination or corruption. In procurement, the government agency faces a tradeoff between the expected allocative efficiency and the expected rent paid to the contracting firm. When the government agency's efficiency gain is larger (resp. smaller) than its rent loss, it is optimal for the government agency to choose the contract with the low‐cost (resp. high‐cost) firm. The general public usually deems that the latter case implies that there exists favoritism in public procurement. We point out that such seeming favoritism is not favoritism in the true sense. There may be an over‐identification of favoritism in public procurement in the existing literature.

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