Sticks and Carrots in Procurement

41 Pages Posted: 18 Dec 2009

See all articles by Maria Bigoni

Maria Bigoni

University of Bologna - Department of Economics; IZA Institute of Labor Economics

Giancarlo Spagnolo

Stockholm School of Economics (SITE); Centre for Economic Policy Research (CEPR); University of Rome 'Tor Vergata'; EIEF

Paola Valbonesi

University of Padua - Department of Economics and Management, DSEA

Date Written: December 18, 2009

Abstract

We study differently framed incentives in dynamic laboratory buyer-seller relationships with multi-tasking and endogenous matching. The experimental design tries to mitigate the role of social preferences and intrinsic motivation. Absent explicit incentives, effort is low in both tasks. Their introduction boosts eciency substantially increasing effort in the contractible task, mildly crowding it out in the non-contractible one, and increasing buyer surplus. Bonuses and penalties are equivalent for efficiency and crowding-out, but different in distributional effects: sellers' surplus increases with bonuses as buyers' offers become more generous. Buyers tend to prefer penalties, which may explain why they are dominant in procurement.

Keywords: bonuses, business-to-business, contract choice, experiment, framing, explicit incentives, incomplete contracts, loss aversion, motivation, penalties, procurement, multi-tasking, relational contracts, rewards

JEL Classification: H57, C92, L14, M52

Suggested Citation

Bigoni, Maria and Spagnolo, Giancarlo and Valbonesi, Paola, Sticks and Carrots in Procurement (December 18, 2009). CEIS Working Paper No. 157. Available at SSRN: https://ssrn.com/abstract=1525416 or http://dx.doi.org/10.2139/ssrn.1525416

Maria Bigoni

University of Bologna - Department of Economics ( email )

Piazza Scaravilli 2
Bologna, Bologna 40126
Italy
+390512098134 (Phone)

HOME PAGE: http://https://www.unibo.it/sitoweb/maria.bigoni/en

IZA Institute of Labor Economics ( email )

P.O. Box 7240
Bonn, D-53072
Germany

Giancarlo Spagnolo (Contact Author)

Stockholm School of Economics (SITE) ( email )

P.O. Box 6501
Stockholm
Sweden

HOME PAGE: http://https://sites.google.com/site/giancarlospagnoloshomepage/

Centre for Economic Policy Research (CEPR)

London
United Kingdom

University of Rome 'Tor Vergata' ( email )

Faculty of Economics - DEI
Via Columbia 2
Rome, RM 00133
Italy

EIEF ( email )

Via Due Macelli, 73
Rome, 00187
Italy

HOME PAGE: http://WWW.EIEF.IT

Paola Valbonesi

University of Padua - Department of Economics and Management, DSEA ( email )

via Del Santo 33
Padova, 35123
Italy
+39+049+8274058 (Phone)

HOME PAGE: http://www.decon.unipd.it

Register to save articles to
your library

Register

Paper statistics

Downloads
62
Abstract Views
906
rank
349,029
PlumX Metrics