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on Contract Theory and Applications |
| By: | Massimo Finocchiaro Castroa; Calogero Guccio; Ilde Rizzo |
| Abstract: | Public infrastructure procurement is crucial as a prerequisite for public and private investments and for economic and social capital growth. However, low performance in execution severely hinders infrastructure provision and benefits delivery. One of the most sensitive phases in public infrastructure procurement is the design because of the strategic relationship that it potentially creates between procurers and contractors in the execution stage, affecting the costs and the duration of the contract. In this paper, using recent developments in non-parametric frontiers and propensity score matching, we evaluate the performance in the execution of public works in Italy. The analysis provides robust evidence of significant improvement of performance where procurers opt for a design and build contracts, which lead to lower transaction costs, allowing contractors to better accommodate the project in the execution. Our findings bear considerable policy implications. |
| Date: | 2023–04 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:2304.10776&r=cta |
| By: | Sarah Auster; Nicola Pavoni |
| Abstract: | We study the delegation problem between a principal and an agent, who not only has better information about the performance of the available actions but also superior awareness of the set of actions that are actually feasible. We provide conditions under which the agent finds it optimal to leave the principal unaware of relevant options. By doing so, the agent increases the principal’s cost of distorting the agent’s choices and increases the principal’s willingness to grant him higher information rents. We further show that the principal may use the option of renegotiation as a tool to implement actions that are not describable to her at the contracting stage. If the agent renegotiates, his proposal signals information about the payoff state. Due to her limited awareness, the principal makes a coarse inference from the agent’s recommendations and, as a result, accepts a large number of the agent’s proposals, which ultimately benefits both. |
| Keywords: | Unawareness, optimal delegation, strategic disclosure |
| JEL: | D82 D83 D86 |
| Date: | 2023–04 |
| URL: | http://d.repec.org/n?u=RePEc:bon:boncrc:crctr224_2023_256v3&r=cta |
| By: | Drake, Samielle (Department of Economics, Umeå University); Xu, Fei (Department of Economics, Umeå University) |
| Abstract: | We examine, theoretically and empirically, the impacts of regulation on optimal bids and competition in public procurement depending on whom the regulation is imposed on. We show that regulation imposed solely on the winner of a procurement contract increases competition whereas regulation imposed on all potential bidders reduces competition. Both types of regulation raise bids in equilibrium. Furthermore, the expected outcomes of regulation depend on its enforceability as bidders adjust their optimal bids and the delivery of the contracts accordingly. Finally, the model’s theoretical implications are supported by behaviours observed in public procurement of cleaning services in Sweden. |
| Keywords: | Public Procurement; Regulation; Competition; Optimal Bids |
| JEL: | D44 H57 L51 |
| Date: | 2023–05–02 |
| URL: | http://d.repec.org/n?u=RePEc:hhs:umnees:1013&r=cta |
| By: | David Bardey (TSE-R - Toulouse School of Economics - UT Capitole - Université Toulouse Capitole - UT - Université de Toulouse - EHESS - École des hautes études en sciences sociales - CNRS - Centre National de la Recherche Scientifique - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement, UNIANDES - Universidad de los Andes [Bogota]); Philippe de Donder (TSE-R - Toulouse School of Economics - UT Capitole - Université Toulouse Capitole - UT - Université de Toulouse - EHESS - École des hautes études en sciences sociales - CNRS - Centre National de la Recherche Scientifique - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement) |
| Abstract: | Personalized medicine is still in its infancy, with costly genetic tests providing little actionable information in terms of efficient prevention decisions. As a consequence, few people undertake these tests currently, and health insurance contracts pool all agents irrespective of their genetic background. Cheaper and especially more informative tests will induce more people to undertake these tests and will impact not only the pricing but also the type of health insurance contracts. We develop a setting with endogenous prevention decisions and we study which contract type (pooling or separating) emerges at equilibrium as a function of the proportion of agents undertaking the genetic test as well as of the informativeness of this test. Starting from the current low take-up rate generating at equilibrium a pooling contract with no prevention effort, we obtain that an increase in the take-up rate has first an ambiguous impact on welfare, and then unambiguously decreases welfare as one moves from a pooling to a separating equilibrium. It is only once the take-up rate is large enough that the equilibrium is separating that any further increase in take-up rate increases aggregate welfare, by a composition effect. However, a better pooling contract in which policyholders undertake preventive actions (and lower their health risk) can also be attained if the informativeness of the genetic tests increases sufficiently. |
| Keywords: | discrimination risk, informational value of test, personalized medecine, pooling and separating equilibria. |
| Date: | 2023–04–22 |
| URL: | http://d.repec.org/n?u=RePEc:hal:wpaper:hal-04082748&r=cta |
| By: | V. V. Chari; Rishabh Kirpalani; Luis Perez |
| Abstract: | The epidemiological literature suggests that virus transmission occurs only when individuals are in relatively close contact. We show that if society can control the extent to which economic agents are exposed to the virus and agents can commit to contracts, virus externalities are local, and competitive equilibria are efficient. The Second Welfare Theorem also holds. These results still apply when infection status is imperfectly observed and when agents are privately informed about their infection status. If society cannot control virus exposure, then virus externalities are global and competitive equilibria are inefficient, but the policy implications are very different from those in the literature. Economic activity in this version of our model can be inefficiently low, in contrast to the conventional wisdom that viruses create global externalities and result in inefficiently high economic activity. If agents cannot commit, competitive equilibria are inefficient because of a novel pecuniary externality. |
| Keywords: | Lockdowns; Virus exposure; Local public goods |
| JEL: | H41 E60 D62 |
| Date: | 2023–04–05 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedmsr:95936&r=cta |