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Journal Article

Procurement Policy and Contracting Efficiency

Anthony G. Bower
International Economic Review
Vol. 34, No. 4 (Nov., 1993), pp. 873-901
DOI: 10.2307/2526970
Stable URL: http://www.jstor.org/stable/2526970
Page Count: 29
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Procurement Policy and Contracting Efficiency
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Abstract

The contracting literature has emphasized the optimality of using certain contracting instruments, such as multiple cost observations, full commitment, self selection and competition. A two-period procurement model is constructed incorporating all of the instruments and optimal contracts are characterized. Numerical examples suggest that the marginal benefits of full commitment, self selection and multiple cost observations are small while the benefits of competition are larger. To obtain some evidence on contracting costs, defense contracting is reviewed. It indicates that using these instruments is very costly, thus calling into question the optimality of using all of the procurement instruments.

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