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on Contract Theory and Applications |
| By: | Martimort, David; Arve, Malin |
| Abstract: | We consider a procurement auction for the provision of a basic service to which an add-on must later be appended. Potential providers are symmetric, have private information on their cost for the basic service and the winning firm must also implement the add-on. To finance cost-reducing activities related to the add-on, this firm may need extra funding by outside financiers. Non-verifiable effort in reducing these costs creates a moral hazard problem which makes the firm’s payoff function for the second period concave in returns over the relevant range. This concavity has two effects: It makes it more attractive to backload payments to facilitate information revelation and uncertainty on the cost of the add-on introduces a background risk which requires a risk premium. In this context, we characterize the optimal intertemporal structure of payments to the winning firm, equilibrium bidding behavior and reserve prices in the first-price auction with bidders. |
| Keywords: | Auctions; procurement; financial constraints; dynamic mechanism design, asymmetric information; uncertainty; endogenous risk aversion. |
| Date: | 2023–09–18 |
| URL: | http://d.repec.org/n?u=RePEc:tse:wpaper:128474&r=cta |
| By: | Fakhrabadi, Mahnaz (Dept. of Business and Management Science, Norwegian School of Economics); Sandal, Leif K. (Dept. of Business and Management Science, Norwegian School of Economics) |
| Abstract: | The paper investigates a multi-period supply channel facing uncertain and price-history dependent demands and environmental regulations. The knowledge about the demands is limited to its mean and standard deviation in each period, .e., there is incomplete information on the actual distribution. A distributional robust approach is conducted to address incompleteness. The chain is incorporating environmental policies such as pollution constraints and (optimal) corrective taxes. A single contract covers all periods. Numerical examples highlight the benefits of a single contract. |
| Keywords: | Dynamic Games; Single Contract; Distributional-Robust Demand; Price-History-Dependent Demand; Pollution Reduction; Sustainability |
| JEL: | C61 C62 C63 C72 C73 D81 Q52 |
| Date: | 2023–09–22 |
| URL: | http://d.repec.org/n?u=RePEc:hhs:nhhfms:2023_013&r=cta |
| By: | Cappelletti, Matilde; Giuffrida, Leonardo M.; Heaton, Sohvi; Siegel, Donald S. |
| Abstract: | A key issue in strategic management in the public sector is how government creates economic and social value through procurement. Unfortunately, most procurement studies are based on contract theories, which fail to incorporate the growing role of strategic management in performance. We fill this gap by analyzing longitudinal data on contracting to assess the equity and efficiency effects of a form of affirmative action used by governments: set-aside programs. Employing a machine learning-augmented propensity score weighting approach, we find that set-aside contracts are negatively associated with contract performance. These effects are attenuated by an agency's dynamic capabilities and the extent to which the agency uses more competitive procedures. Our findings illustrate how the dynamic capabilities of a federal agency can simultaneously enhance equity and efficiency. |
| Keywords: | Dynamic capabilities, resource-based view, public procurement, machine learning, random forest |
| JEL: | D73 H57 O38 L22 |
| Date: | 2023 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:zewdip:23035&r=cta |
| By: | Zachary Liscow; Will Nober; Cailin Slattery |
| Abstract: | Infrastructure costs in the United States are high and rising. The procurement process is one potential cost driver. In this paper we conduct a survey of procurement practices across the 50 states. We survey both employees at each state department of transportation (DOT) and the road builders that win contracts to build and maintain roads. With this survey we are able to create a new dataset of procurement rules and practices across the U.S. and understand what actors on the ground think drive costs. We then assemble a new dataset of project-level infrastructure costs. We correlate the survey practices with our new, detailed data on costs. We find that two important inputs in the procurement process appear to particularly drive costs: (1) the capacity of the DOT procuring the project and (2) the lack of competition in the market for government construction contracts. |
| JEL: | D44 H54 H57 H83 K40 L38 L91 O18 R42 |
| Date: | 2023–09 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:31705&r=cta |
| By: | Takahara, Tsuyoshi; Kanda, Yutaka |
| Abstract: | This study analyzes the effect of the content of report cards on the optimal incentivized payment for physicians. Our analysis assumes that report card disclosure builds a reputation regarding physicians' ability among patients who do not have the expertise to know better. Furthermore, we assume that the insurer designs a payment scheme that designates high-ability physicians to provide advanced treatment and low-ability physicians to provide a conventional treatment. We compare the benchmark (no disclosure) with two disclosure policies: detailed, where patients can recognize what service was provided and the outcome of the advanced treatment for all physicians, and limited, where patients can distinguish only physicians who provided the advanced treatment successfully. Our analysis shows that detailed disclosure requires a higher expected payment than the benchmark, and the insurer can save it by limiting the informativeness of the report. Intuitively, detailed disclosure conveys physician type more precisely, and the insurer must pay an additional wage for the conventional treatment provided by low-ability physicians. Our result implies that incentivization by non-monetary method (report card) and monetary method (pay-for-performance) may work in both complement and substitute. |
| Keywords: | Principal-agent model, Reputation concern, Asymmetric information |
| JEL: | D23 D86 I18 |
| Date: | 2023–09–08 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:118529&r=cta |