Limited liability and mechanism design in procurement
Burguet, Roberto
Ganuza Fernández, Juan José
Hauk, Esther
Universitat Autònoma de Barcelona. Unitat de Fonaments de l'Anàlisi Econòmica
Universitat Autònoma de Barcelona. Institut d'Anàlisi Econòmica

Date: 2009
Description: 31 p.
Abstract: In the presence of cost uncertainty, limited liability introduces the possibility of default in procurement with its associated bank-ruptcy costs. When financial soundness is not perfectly observable, we show that incentive compatibility implies that financially less sound contractors are selected with higher probability in any feasible mechanism. Informational rents are associated with unsound financial situations. By selecting the financially weakest contractor, stronger price competition (auctions) may not only increase the probability of default but also expected rents. Thus, weak conditions are suffcient for auctions to be suboptimal. In particular, we show that pooling firms with higher assets may reduce the cost of procurement even when default is costless for the sponsor.
Rights: Aquest document està subjecte a una llicència d'ús de Creative Commons, amb la qual es permet copiar, distribuir i comunicar públicament l'obra sempre que se'n citin l'autor original, la universitat, la unitat i l'institut i no se'n faci cap ús comercial ni obra derivada, tal com queda estipulat en la llicència d'ús Creative Commons
Language: Anglès.
Series: Working papers
Series: Working papers ; 767.09
Document: workingPaper
Subject: Fallida ; Responsabilitat limitada

Adreça alternativa: https://hdl.handle.net/2072/20343


31 p, 203.6 KB

The record appears in these collections:
Research literature > Working papers > Fundamentals Unit of the Economic Analysis. Working papers

 Record created 2009-07-15, last modified 2020-01-13



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