Paper #1824

Títol:

Competition under incomplete contracts and the design of procurement policies

Autors:

Rodrigo Carril, Andres Gonzalez-Lira i Michael S. Walker

Data:

Març 2022

Resum:

We study the effects of intensifying competition for contracts in the context of U.S. Defense procurement. Conceptually, opening contracts up to bids by more participants leads to lower awarding prices, but may hinder buyers' control over non-contractible characteristics of prospective contractors. Leveraging a regulation that mandates agencies to publicize certain contract opportunities, we document that expanding the set of bidders reduces award prices, but deteriorates post-award performance, resulting in more cost overruns and delays. To further study the scope of this tension, we develop and estimate a model in which the buyer endogenously chooses the intensity of competition, invited sellers decide on auction participation and bidding, and the winner executes the contract ex-post. Model estimates indicate substantial heterogeneity in ex-post performance across contractors, and show that simple adjustments to the current regulation that account for adverse selection could provide 2 percent of savings in procurement spending, or $104 million annually

Paraules clau:

Procurement, competition, auctions, incomplete contracts

Codis JEL:

D22, D44, D73, H57, L13, L14

Àrea de Recerca:

Economia Laboral, Pública, de Desenvolupament i de la Salut

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