Public Procurement in Times of Crisis: The Bundling Decision Reconsidered

17 Pages Posted: 7 Oct 2013

See all articles by Patrick W. Schmitz

Patrick W. Schmitz

University of Cologne; Centre for Economic Policy Research (CEPR)

Multiple version iconThere are 2 versions of this paper

Date Written: October 2013

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.

Keywords: bundling, limited liability, moral hazard, procurement contracts, public goods provision

JEL Classification: D86, H12, H57, L24, L33

Suggested Citation

Schmitz, Patrick W., Public Procurement in Times of Crisis: The Bundling Decision Reconsidered (October 2013). CEPR Discussion Paper No. DP9676. Available at SSRN: https://ssrn.com/abstract=2337006

Patrick W. Schmitz (Contact Author)

University of Cologne ( email )

Albertus-Magnus-Platz
Cologne, 50923
Germany

HOME PAGE: http://schmitz.uni-koeln.de/index.php?s=mitarbeiter&t=schmitz

Centre for Economic Policy Research (CEPR)

London
United Kingdom

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