Court Efficiency and Procurement Performance

Disputes over penalties for breaching a contract are often resolved in court. A simple model illustrates how inefficient courts can sway public buyers from enforcing a penalty for late delivery in order to avoid litigation, thereby inducing sellers to delay contract delivery. By using a large dataset on Italian public procurement, we empirically study the effects of court inefficiency on public work performance. Where courts are inefficient, we find the following: public works are delivered with longer delays; delays increase for more valuable contracts; contracts are more often awarded to larger suppliers; and a higher share of the payment is postponed after delivery. Other interpretations receive less support from the data.     

On the profitability of self‐sabotage

We demonstrate how a supplier can enhance his expected profit by intentionally increasing his expected production costs or limiting his ability to reduce these costs. Such self‐sabotage benefits the supplier when it induces a buyer to implement a more favourable procurement policy, i.e., one that motivates the supplier to deliver cost‐reducing effort systematically rather than selectively. We also demonstrate how the seemingly inefficient persistent implementation of a procurement contract that does not change as the prevailing environment changes can reduce procurement costs by deterring self‐sabotage.     

公共采购合同订立程序的归结与思考

明确公共采购合同订立程序及相关事项,有助于提高公共采购合同的签约效率,有助于推进订立工作的法治化进程。公共采购合同订立,一般经过信息发布、供应商遴选、合同草案起草、合同审定、合同签订、合同签章、合同生效和备案等步骤。     

Optimal sequential contract with a risk‐averse supplier

We study optimal contracts in environments where a risk‐averse supplier discovers cost information privately and gradually over time: the supplier is privately informed about its cost uncertainty at the time of contracting and discovers the realization of cost condition privately after contracting and before production. We show that both the buyer and the supplier prefer more cost uncertainty when the supplier is not very risk‐averse but less cost uncertainty when the supplier is sufficiently risk‐averse. However, the buyer always prefers to contract before the cost uncertainty resolves regardless of the supplier's degree of risk aversion. The nature of the optimal contract also depends on the supplier's risk preference. A separating contract is optimal when the supplier is not very risk‐averse; however, a pooling contract, which offers the same contract terms regardless of the cost uncertainty, can be optimal when the supplier becomes sufficiently risk‐averse. Moreover, the optimal production schedule is often characterized by “inflexible rules.”     

Determinants of adaptation costs in procurement: an empirical estimation on Italian public works contracts

It is widely agreed that rules governing public procurement should be designed to achieve value for money. However, in the public works sector, ‘…?the good being procured is usually complex and hard to be exactly specified ex ante, …?[and] alterations to the original project might be needed after the contract is awarded. This may result in considerable discrepancies between the lowest winning bid and the actual costs that are incurred by the buyer’ (Bajari et al., 2006). There is now a wide body of literature focusing on cost escalation during the execution of contracts and their estimates reveal that it can be often quite large. This article is aimed at offering an empirical test of the determinants of adaptation costs in the public works procurement. Using a detailed data set on Italian public works contracts, we run an empirical analysis, grounded on the main conclusions reached in the literature, to test for the main drivers of adaptation costs.     

A note on optimal procurement contracts with limited direct cost inflation

Laffont and Tirole's [Using cost observation to regulate firms, J. Polit. Econ. 94 (1986) 614-641] pioneering analysis identifies the optimal procurement contract when the supplier can readily inflate his innate production cost without detection. When the buyer has some ability to limit such cost inflation, an alternative contract can outperform the contract identified by Laffont and Tirole. The alternative contract induces substantial pooling, discontinuous production costs and effort supply, and rent that varies non-monotonically with innate cost.     

Temporary partnership and subcontracting: Pre- vs. post- award outsourcing in public procurement

We empirically compare bids (i.e. prices) from temporary partnerships (TPs), that outsource part of the contract before the auction, and firms that outsource afterwards. Using a comprehensive dataset on procurement auctions for public works in Valle d’Aosta (Italy), we find that the timing of outsourcing affects the bids and the probability of winning the auction. Specifically, TPs bid closer to the payoff maximizing offer and are more likely to win. Hence, the price paid by the public buyer is lower. These results are supported by a simple theoretical setting showing that, by pre-committing to a TP, suppliers have a lower risk of being “held up” by subcontractors than firms that outsource part of the work after the bidding phase. Our results show the advantage for TPs of freely choosing partners, size and boundaries before the auction, highlighting their potential in fostering the effective participation in public procurement procedures of Small and Medium-sized Enterprises (SMEs).     

政府补贴下区分制造商类型的合约设计

考虑政府补贴下由一个供应商和一个制造商构成的绿色供应链.供应商通过对原材料和产品生产过程的控制来提供绿色产品,也因此能够获得政府补贴.政府依据供应链的最终产品数量向供应商提供补贴,供应商选择制造商以完成最终产品的生产过程,并除采购价格以外按一定比例与制造商分享政府补贴,制造商有生产成本等私人信息.在分析供应商和制造商成本、收益的基础上,建立了一个逆向选择模型,其中供应商提供包括供应数量和补贴分享比例的合约菜单,制造商从中选择一个合约或者拒绝全部合约,依据成本制造商可分为两种类型:较高机会成本和较低机会成本,通过优化合约设计,供应商对不同类型制造商提供不同的供应数量和补贴比例,以实现供应商收益最大化.     

Endogenous market regulation in a signaling model of lobby formation

This paper aims at explaining industry protection in a context in which the government cannot observe the state of market demand. We develop an asymmetric information model and use the tools of contract theory in order to understand (1) how the level of industry protection is endogenously determined, and (2) why some industries decide to engage in large lobbying costs to become politically active. Our model offers plausible explanations to phenomena such as the “loser’s paradox”, where weak industries receive the most protection although strong industries are the ones that spend more resources on lobbying activities. The model also allows for an analysis of the influence that lobbying costs have on the decision to organize actively as a lobby.     

Econometric Analyses of Home Bias in Government Procurement

The extent of discrimination in government procurement and its impact on economic efficiency has attracted both theoretical and analytical work, but little econometric evidence. We bridge this gap by building a new sector‐level dataset on domestic and foreign purchases by Japanese and Swiss governments over 1990–2003 to undertake “new” econometric analyses. Unlike previous work, we explain home‐bias using variables inspired by the political economy, trade‐macroeconomic and procurement literatures. We also provide “new” econometric evidence for previous theoretical predictions. Our results reveal the importance of domestic‐foreign productivity differences in governments’ cross‐border purchases and also support previous theoretical predictions. However, Membership of the World Trade Organizations's Agreement on Government Procurement is not found to increase market access.     

USING COMMERCIAL DISCIPLINE TO IMPROVE AUSTRALIAN DEFENCE PROCUREMENT: MISPLACED ENTHUSIASM?

Australia, like other democracies, has long sought to improve the efficiency and effectiveness of procurement for national defence. A recent review exhorted Defence procurement managers to exert greater “commercial discipline.” Similar calls have been made in other countries. This paper tests such public sector emulation of commercial practice by comparing the relative effectiveness of procurement via in‐house arrangements; a public procurement agency detached from Defence; and privatized provision. We show that what matters is not public or private ownership but how ownership and management are integrated and what incentive structures are applied. (JEL H44)     

Implications of a Discard Ban in Multispecies Quota Fisheries

We present an analysis of quota regulation and discarding in multispecies fisheries, explicitly taking into account the costs of non-compliance with quotas and a possible discard ban, as well as the costs of selective fishing (avoidance effort). We examine the impact of a discard ban on vessels’ profit maximising behaviour, in particular where species quotas are not set in proportion to their availability on the fishing grounds, considering both non-tradeable quotas and ITQs. We show the interdependence between penalty rates for both discards and over-quota landings in determining quota market outcomes. We find that quota prices are sensitive to penalty rates and to the presence of restrictive quotas for “choke” species.     

报童投资组合模型中的批发价契约设计

当风险规避型报童的订货资金有限,却有多种产品可供订购时,供应商需要设计恰当的契约,以引导报童的订货行为,实现最大化自身收益的目的。针对上述问题,本文运用投资组合理论处理报童的决策问题;在此基础上建立了供应商与报童之间的博弈模型,设计了求解最优批发价契约的算法;通过数值算例,说明了最优契约的求解过程。结果表明,与未经优化而随机选择的契约相比,基于该算法求得的契约显著提升了供应商的期望收益。     

The legacy of R. Coase (1910–2013): toward a theory of institutional 'moving equilibrium'?

Over almost a century, Ronald Coase’s works have largely differed in their contents. Under the general umbrella of the “law and economics” field, Coase’s scientific production has indeed covered a large variety of topics and policy issues. However, Coase’s analyses reveal a common framework, if not a structured methodology. We highlight five key ingredients of the “Coasean methodology” and apply them to revisit Coase’s main contributions. The resulting picture reveals a comprehensive theory of institutional “moving equilibrium”, where the institutional design of socioeconomic transactions is affected by the dimension of transaction costs.     

Efficiency versus optimality in procurement

We study procurement procedures that simultaneously determine the specification and price of a good. Suppliers can offer and produce the good in either of two possible specifications, both of which are equally good for the buyer. Production costs are interdependent and unknown at the time of bidding. Each supplier receives two signals about production cost, one per specification. Our model is a special case of the interdependent value settings with multidimensional types in Jehiel and Moldovanu (Econometrica 69:1237–1259, 2001) where an efficient and incentive compatible mechanism exists. We characterize equilibrium bidding behavior if the winning supplier is selected purely on the basis of price, regardless of the specification offered. While there is a positive chance of obtaining an inefficient specification, this procurement mechanism involves lower information rents than efficient mechanisms, suggesting that there is a trade-off between minimizing expected expenditure for the good, and ensuring that the efficient specification is chosen.     

One size may not fit all: Welfare benefits and cost reductions with optional differentiated household electricity rates

We consider optional time-of-use (TOU) pricing for residential consumers, offered by a publicly regulated electricity supplier, as an alternative to a single TOU or flat rate structure. An equilibrium model explores and quantifies the effects of such pricing on welfare, consumption, and production costs. The supplier offers to each household a menu of possible rate structures obtained by maximizing a collective welfare function subject to three restrictions: Pareto efficiency, incentive compatibility, sufficiency of supplier revenue to cover costs. Simulations based on realistic calibration of the model demonstrate that optional pricing can increase overall consumer welfare and reduce average cost.     

Conformism and public news

We study a model where investment decisions are based on investor’s information about the unknown and endogenous return of the investment. The information of investors consists of endogenously determined messages sold by financial analysts who have access to both public and private information on the return. We assume that the return is increasing in the aggregate investment. This results into a beauty contest among analysts (or a “conformism” effect). There may exist multiple equilibria, each of which entails analysts sending the most informative messages possible. Beyond the “regular” equilibrium involving an overweighing of the public information, multiplicity introduces “inverted” equilibria where public information is negatively correlated with the return. The correlation across analysts’ information sources implies that not all the information available is transmitted to investors.     

“Haircuts” for the EMU periphery: virtue or vice?

We use a dynamic game model of a two-country monetary union to study the impacts of an exogenous fall in aggregate demand, the resulting increase in public debt, and the consequences of a sovereign debt haircut for a member country or bloc of the union. Two different scenarios for such a haircut are assumed: an expected and an unexpected haircut. In the union, the governments of participating countries pursue national goals when deciding on fiscal policies whereas the common central bank’s monetary policy aims at union-wide objective variables. The union considered is asymmetric, consisting of a “core” with lower initial public debt, and a “periphery” with higher initial public debt. The “periphery’’ may experience the haircut due to the high level of its sovereign debt. We calculate numerical solutions of the dynamic game between the governments and the central bank using the OPTGAME algorithm. We show that a haircut as modeled in our study is disadvantageous for both the “core” and the “periphery” of the monetary union, both when expected and when unexpected.     

分权的“悖论”：“省管县”改革对居民医疗服务满意度的影响

财政分权是否有助于提高与本地居民偏好更加匹配的公共服务水平未有定论。借助“省管县”改革这一准自然实验,文章旨在从微观需求角度考察地方分权对公共服务改善的效果。采用2005年的县级宏观数据和 CG S S2005居民调查数据,本文对“省管县”改革与公共医疗服务满意度的关系进行了实证分析。 Logit模型结果表明,“省管县”财政体制的实施未能使当地政府提供让居民更加合意的医疗服务,反而恶化了居民对公共医疗服务的满意度。在排除了“改革错觉”、“预期效应”以及“滞后效应”的干扰后,这一结论依旧稳健。文章认为,财权扩大加剧了地方政府间竞争,使得县级政府有更大的激励将财政资金投入到基建领域而非民生领域,这将导致医疗服务供给相对不足,进而引起满意度的下降。中介分析证实了这一推理。文章研究有助于从微观视角评析分权改革的公共福利效应。     

Pre-commercial procurement,procurement of innovative solutions and innovation partnerships in the EU: rationale and strategy

We discuss public procurement instruments for acquiring innovation, focusing on the European Pre-commercial Procurement, Procurement of Innovative Solutions and Innovation Partnerships. We analyse, in particular, how firms’ innovation incentives are affected by: (i) economies of scope and externalities between R&D and large-scale production; (ii) the degree of specificity of the innovation; (iii) the presence of Small and Medium Enterprises in the market and the level of market competition; (iv) the risk of market foreclosure and supplier lock-in. Our study contributes to the literature on incentives in demand-side innovation policy by tapping into the contractual design features and by offering relevant implications for academics and policy-makers.