Abstract

http://ssrn.com/abstract=276130
 
 

Citations



 


 



Incentives versus Transaction Costs: A Theory of Procurement Contracts


Patrick Bajari


University of Michigan at Ann Arbor - Economics; National Bureau of Economic Research (NBER)

Steven Tadelis


University of California, Berkeley - Haas School of Business


RAND Journal of Economics, Vol. 32, No. 3

Abstract:     
Inspired by facts from the private sector construction industry, we develop a model that explains many stylized facts of procurement contracts. The buyer in our model incurs a cost of providing a comprehensive design, and is faced with a trade-off between providing incentives and reducing ex post transaction costs due to costly renegotiation. We show that cost plus contracts are preferred to fixed price contracts when a project is more complex. We briefly discuss how fixed-price or cost-plus contracts might be preferred to other incentive contracts. Finally, our model provides some micro-foundations for ideas from Transaction Cost Economics.

JEL Classification: D23, D82, L14, L22, L74

Accepted Paper Series





Not Available For Download

Date posted: August 15, 2001  

Suggested Citation

Bajari, Patrick and Tadelis, Steven, Incentives versus Transaction Costs: A Theory of Procurement Contracts. RAND Journal of Economics, Vol. 32, No. 3. Available at SSRN: http://ssrn.com/abstract=276130

Contact Information

Patrick Bajari
University of Michigan at Ann Arbor - Economics ( email )
266 Lorch Hall
Ann Arbor, MI 48109
United States
734-763-5319 (Phone)
HOME PAGE: http://www-personal.umich.edu/~bajari/
National Bureau of Economic Research (NBER)
1050 Massachusetts Avenue
Cambridge, MA 02138
United States
Steven Tadelis (Contact Author)
University of California, Berkeley - Haas School of Business ( email )
545 Student Services Building, #1900
2220 Piedmont Avenue
Berkeley, CA 94720
United States
Feedback to SSRN


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