Incentives versus Transaction Costs: A Theory of Procurement Contracts
Опубликовано на портале: 06-10-2003
Stanford University - Department of Economics: Working Paper. 1999.
Inspired by facts from the private sector construction industry, we develop a model that explains many of the stylized facts about procurement contracts. The buyer in our model incurs a cost of providing a comprehensive design, and is faced with a trade-off between providing incentives and reducing ex post transaction costs due to costly renegotiation. We show that cost plus contracts are preferred to fixed price contracts when a project is more complex or when time-to-completion is more valuable. We also show when fixed-price or cost-plus contracts would be preferred to other incentive contracts, explaining the prevalence of these simple contracts. We then apply our model to the make-or-buy procurement decision and conclude that internal production dominates market procurement when the product is more complex, providing foundations for Transaction Cost Economics.
Information, Corporate Governance, and Institutional Diversity: Competitiveness in Japan, the Usa, and the Transitional Economies.
NBER Working Paper Series. 1992. No. 4097.
Yale Law & Economics Research Paper. 2001. No. 264.
Institutions and Economic Theory: The Contribution of the New Institutional Economics (Economics, Cognition, and Society)