Rent Extractions and Efficiency in Long Term Procurement
Autor(a) principal: | |
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Data de Publicação: | 1989 |
Tipo de documento: | Artigo |
Idioma: | eng |
Título da fonte: | Repositório Científico de Acesso Aberto de Portugal (Repositórios Cientìficos) |
Texto Completo: | http://hdl.handle.net/10362/84567 |
Resumo: | We consider the procurement setting in which a sponsor and a contractor are concerned with the construction of a long term project where the project requires a number of tasks to be completed before the benefit from the project can be realized. The contractor has private, task specific information which is relevant in cost determination. We focus on the case where the sponsor can precommit to compensation per task and where the contractor knows precisely the cost of each task right from the beginning of construction of the project. In this setting we construct the optimal "direct contract" and show that, for each particular firm, the optimal payment consists of two parts: the true cost of the project plus the contractor's reservation level of profit and a premium term which increases with the maximum number of high cost tasks that the sponsor is willing to allow. The sponsor resolves the tradeoff between allocative efficiency and increased ability to extract contractor's rents (which constitute the optimal contract's premium term) on the basis of her own beliefs. Furthermore, we show that the solution to the sponsor's problem is one of underemployment of the existing resources. |
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Rent Extractions and Efficiency in Long Term ProcurementWe consider the procurement setting in which a sponsor and a contractor are concerned with the construction of a long term project where the project requires a number of tasks to be completed before the benefit from the project can be realized. The contractor has private, task specific information which is relevant in cost determination. We focus on the case where the sponsor can precommit to compensation per task and where the contractor knows precisely the cost of each task right from the beginning of construction of the project. In this setting we construct the optimal "direct contract" and show that, for each particular firm, the optimal payment consists of two parts: the true cost of the project plus the contractor's reservation level of profit and a premium term which increases with the maximum number of high cost tasks that the sponsor is willing to allow. The sponsor resolves the tradeoff between allocative efficiency and increased ability to extract contractor's rents (which constitute the optimal contract's premium term) on the basis of her own beliefs. Furthermore, we show that the solution to the sponsor's problem is one of underemployment of the existing resources.Nova SBERUNLeite, António Nogueira2019-10-17T15:11:34Z1989-041989-04-01T00:00:00Zinfo:eu-repo/semantics/publishedVersioninfo:eu-repo/semantics/articleapplication/pdfhttp://hdl.handle.net/10362/84567engLeite, António P. N., Rent Extractions and Efficiency in Long Term Procurement (April, 1989). FEUNL Working Paper Series No. 119info:eu-repo/semantics/openAccessreponame:Repositório Científico de Acesso Aberto de Portugal (Repositórios Cientìficos)instname:Agência para a Sociedade do Conhecimento (UMIC) - FCT - Sociedade da Informaçãoinstacron:RCAAP2024-03-11T04:37:44Zoai:run.unl.pt:10362/84567Portal AgregadorONGhttps://www.rcaap.pt/oai/openaireopendoar:71602024-03-20T03:36:31.040082Repositório Científico de Acesso Aberto de Portugal (Repositórios Cientìficos) - Agência para a Sociedade do Conhecimento (UMIC) - FCT - Sociedade da Informaçãofalse |
dc.title.none.fl_str_mv |
Rent Extractions and Efficiency in Long Term Procurement |
title |
Rent Extractions and Efficiency in Long Term Procurement |
spellingShingle |
Rent Extractions and Efficiency in Long Term Procurement Leite, António Nogueira |
title_short |
Rent Extractions and Efficiency in Long Term Procurement |
title_full |
Rent Extractions and Efficiency in Long Term Procurement |
title_fullStr |
Rent Extractions and Efficiency in Long Term Procurement |
title_full_unstemmed |
Rent Extractions and Efficiency in Long Term Procurement |
title_sort |
Rent Extractions and Efficiency in Long Term Procurement |
author |
Leite, António Nogueira |
author_facet |
Leite, António Nogueira |
author_role |
author |
dc.contributor.none.fl_str_mv |
RUN |
dc.contributor.author.fl_str_mv |
Leite, António Nogueira |
description |
We consider the procurement setting in which a sponsor and a contractor are concerned with the construction of a long term project where the project requires a number of tasks to be completed before the benefit from the project can be realized. The contractor has private, task specific information which is relevant in cost determination. We focus on the case where the sponsor can precommit to compensation per task and where the contractor knows precisely the cost of each task right from the beginning of construction of the project. In this setting we construct the optimal "direct contract" and show that, for each particular firm, the optimal payment consists of two parts: the true cost of the project plus the contractor's reservation level of profit and a premium term which increases with the maximum number of high cost tasks that the sponsor is willing to allow. The sponsor resolves the tradeoff between allocative efficiency and increased ability to extract contractor's rents (which constitute the optimal contract's premium term) on the basis of her own beliefs. Furthermore, we show that the solution to the sponsor's problem is one of underemployment of the existing resources. |
publishDate |
1989 |
dc.date.none.fl_str_mv |
1989-04 1989-04-01T00:00:00Z 2019-10-17T15:11:34Z |
dc.type.status.fl_str_mv |
info:eu-repo/semantics/publishedVersion |
dc.type.driver.fl_str_mv |
info:eu-repo/semantics/article |
format |
article |
status_str |
publishedVersion |
dc.identifier.uri.fl_str_mv |
http://hdl.handle.net/10362/84567 |
url |
http://hdl.handle.net/10362/84567 |
dc.language.iso.fl_str_mv |
eng |
language |
eng |
dc.relation.none.fl_str_mv |
Leite, António P. N., Rent Extractions and Efficiency in Long Term Procurement (April, 1989). FEUNL Working Paper Series No. 119 |
dc.rights.driver.fl_str_mv |
info:eu-repo/semantics/openAccess |
eu_rights_str_mv |
openAccess |
dc.format.none.fl_str_mv |
application/pdf |
dc.publisher.none.fl_str_mv |
Nova SBE |
publisher.none.fl_str_mv |
Nova SBE |
dc.source.none.fl_str_mv |
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Agência para a Sociedade do Conhecimento (UMIC) - FCT - Sociedade da Informação |
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RCAAP |
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RCAAP |
reponame_str |
Repositório Científico de Acesso Aberto de Portugal (Repositórios Cientìficos) |
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Repositório Científico de Acesso Aberto de Portugal (Repositórios Cientìficos) |
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Repositório Científico de Acesso Aberto de Portugal (Repositórios Cientìficos) - Agência para a Sociedade do Conhecimento (UMIC) - FCT - Sociedade da Informação |
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