Incomplete contracts in dynamic procurement


Gretschko, Vitali ; Pollrich, Martin


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URL: https://madoc.bib.uni-mannheim.de/53178
URN: urn:nbn:de:bsz:180-madoc-531780
Document Type: Working paper
Year of publication: 2019
The title of a journal, publication series: ZEW Discussion Papers
Volume: 19-040
Place of publication: Mannheim
Publication language: English
Institution: School of Law and Economics > VWL, Marktdesign (Gretschko 2017-)
Sonstige Einrichtungen > ZEW - Leibniz-Zentrum für Europäische Wirtschaftsforschung
MADOC publication series: Veröffentlichungen des ZEW (Leibniz-Zentrum für Europäische Wirtschaftsforschung) > ZEW Discussion Papers
Subject: 330 Economics
Classification: JEL: D44 , D82 , H57,
Keywords (English): Incomplete contracts , repeated relationships , procurement , commitment
Abstract: We analyze the problem of a buyer who purchases a long-term project from one of several suppliers. A changing state of the world influences the costs of the suppliers. Complete contracts conditioning on all future realizations of the state are infeasible. We show that contractual incompleteness comes without a cost. The buyer achieves the same surplus with complete and incomplete contracts. The key insight is that the allocation prescribed by optimal complete contracts is sequentially optimal with incomplete contracts if the buyer does not receive too much information ex-interim. We show that the English auction restricts the information optimally.

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Gretschko, Vitali ; Pollrich, Martin (2019) Incomplete contracts in dynamic procurement. Open Access ZEW Discussion Papers Mannheim 19-040 [Working paper]
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