Public Procurement in Times of Crisis: The Bundling Decision Reconsidered

Schmitz, Patrick W. (2013): Public Procurement in Times of Crisis: The Bundling Decision Reconsidered. Published in: Economics Letters , Vol. 121, No. 3 (2013): pp. 533-536.

Abstract

The government wants two tasks to be performed. In each task, unobservable effort can be exerted by a wealth-constrained private contractor. If the government faces no binding budget constraints, it is optimal to bundle the tasks. The contractor in charge of both tasks then gets a bonus payment if and only if both tasks are successful. Yet, if the government has only a limited budget, it may be optimal to separate the tasks, so that there are two contractors each in charge of one task. In this case, high efforts in both tasks can be implemented with smaller bonus payments.

• Item Type: MPRA Paper
• Language: English
• Keywords: moral hazard; limited liability; procurement contracts; bundling; public goods provision
• Subjects: D - Microeconomics > D8 - Information, Knowledge, and Uncertainty > D86 - Economics of Contract: Theory; H - Public Economics > H1 - Structure and Scope of Government > H12 - Crisis Management; H - Public Economics > H5 - National Government Expenditures and Related Policies > H57 - Procurement; L - Industrial Organization > L2 - Firm Objectives, Organization, and Behavior > L24 - Contracting Out ; Joint Ventures ; Technology Licensing; L - Industrial Organization > L3 - Nonprofit Organizations and Public Enterprise > L33 - Comparison of Public and Private Enterprises and Nonprofit Institutions ; Privatization ; Contracting Out

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