Abstract
The paper studies procurement contracts with pre–project investigations in the presence of adverse selection and moral hazard. To model the procurer’s roblem, we extend a standard sequential screening model to endogenous information acquisition with moral hazard. The optimal contract displays systematic distortions in information acquisition. Due to a rent effect, adverse selection induces too much information acquisition to prevent cost overruns and too little information acquisition to prevent false project cancelations. Moral hazard mitigates the distortions related to cost overruns yet exacerbates those related to false negatives. The optimal mechanism is a menu of option contracts that achieves the dual goal of providing incentives for information acquisition and truthful information revelation.
Item Type: | Paper |
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Keywords: | Information acquisition, procurement, dynamic mechanism design |
Faculties: | Special Research Fields > Discussion Paper Series of SFB/TR 15 Governance and the Efficiency of Economic Systems Special Research Fields > Discussion Paper Series of SFB/TR 15 Governance and the Efficiency of Economic Systems > A1 - Allokationsmechanismen in Organisationen und Märkten Special Research Fields > Discussion Paper Series of SFB/TR 15 Governance and the Efficiency of Economic Systems > A5 - Unvollständige Vertragsbeziehungen und die Gestaltung von Residualrechten |
Subjects: | 300 Social sciences > 330 Economics |
JEL Classification: | D82, H57 |
URN: | urn:nbn:de:bvb:19-epub-13251-3 |
Language: | English |
Item ID: | 13251 |
Date Deposited: | 10. Jul 2012, 13:07 |
Last Modified: | 04. Nov 2020, 12:53 |