Procurement contracts: Theory vs. practice

Technical Appendix to Accompany " Procurement Contracts : Theory vs . Practice " by Leon

Division of Economics and Business Working Paper Series Natural Gas Contract Decisions for Electric Power

Natural gas power plants can further specify their procurement contracts with pipeline distributors using a firm contract option that guarantees delivery at an additional cost. Using transaction level data from 2008-2012 we empirically test what characteristics lead to use of firm contracts and how the premium for firm contracts changes with these characteristics. Using variation in power plant...

Incentives versus transaction costs: a theory of procurement contracts

Inspired by facts from the private-sector construction industry, we develop a model that explains many stylized facts of procurement contracts. The buyer in our model incurs a cost of providing a comprehensive design and is faced with a tradeoff between providing incentives and reducing ex post transaction costs due to costly renegotiation. We show that cost-plus contracts are preferred to fixe...

Delegation vs. Control of Component Procurement*

A manufacturer must choose to delegate component procurement to its tier-1 supplier, or to control component procurement by contracting with both the tier-1 supplier and the tier-2 component supplier. Both suppliers have private cost information and the manufacturer has an alternative source of supply with cost known to all parties. This paper proves that if the firms may use arbitrarily comple...

Strategic contracting practices to improve procurement of health commodities

Public-sector entities responsible for procurement of essential medicines and health commodities in developing countries often lack the technical capacity to efficiently ensure supply security. Under strict public scrutiny and pressures to be transparent, many agencies continue to use archaic procurement methods and to depend on inflexible forecasts and cumbersome tendering processes. On the ba...