Self-Correcting Mechanisms in Public Procurement: Why Award and Contract Should Be Separated

30 Pages Posted: 21 Mar 2001

See all articles by Dieter Bös

Dieter Bös

CESifo (Center for Economic Studies and Ifo Institute)

Martin Kolmar

University of St. Gallen - Institute of Economy and the Environment (IWOe-HSG); CESifo (Center for Economic Studies and Ifo Institute)

Date Written: June 2000

Abstract

In public procurement a temporal separation of award and actual contracting can frequently be observed. In this paper we give an explanation for this institutional setting. For incomplete procurement contracts we show that such a separation may increase efficiency. We show that efficiency can be increased by post-award, pre-contract negotiations between the award-winning seller and one of the "losing" sellers. Surprisingly, the efficiency gains can be higher if the award is given to a seller with a lower reputation for quality instead of to a seller with higher reputation. Under certain conditions post-award, pre-contract rent-seeking activities also increase efficiency. This is always the case if the procurement agency is corrupt, but may also occur in the case of lobbying.

JEL Classification: D23, H57, L51

Suggested Citation

Bös, Dieter and Kolmar, Martin, Self-Correcting Mechanisms in Public Procurement: Why Award and Contract Should Be Separated (June 2000). Available at SSRN: https://ssrn.com/abstract=263788 or http://dx.doi.org/10.2139/ssrn.263788

Dieter Bös (Contact Author)

CESifo (Center for Economic Studies and Ifo Institute)

Poschinger Str. 5
Munich, DE-81679
Germany

Martin Kolmar

University of St. Gallen - Institute of Economy and the Environment (IWOe-HSG) ( email )

Varnbüelstrasse 14
CH-9000 St. Gallen
Switzerland
+41 (0)71 224 25 35 (Phone)
+41 (0)71 224 23 02 (Fax)

CESifo (Center for Economic Studies and Ifo Institute)

Poschinger Str. 5
Munich, DE-81679
Germany

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