Reputation in public procurement: A socially desirable mechanism to solve the problem of unverifiable quality

Journal title ECONOMIA PUBBLICA
Author/s Guido Tatone
Publishing Year 2018 Issue 2018/1 Language Italian
Pages 27 P. 59-85 File size 266 KB
DOI 10.3280/EP2018-001003
DOI is like a bar code for intellectual property: to have more infomation click here

Below, you can see the article first page

If you want to buy this article in PDF format, you can do it, following the instructions to buy download credits

Article preview

FrancoAngeli is member of Publishers International Linking Association, Inc (PILA), a not-for-profit association which run the CrossRef service enabling links to and from online scholarly content.

In this assignment we analyse the problem of quality cut in public procurement when the quality is not verifiable. Our paper contributes to the large literature studying the enforcement of unverifiable quality in procurement, first, analysed by Kim (1998), then continued by Doni (2006) and Albano et al. (2017a). We identify reputational mechanism as a good tool to solve the problem of quality. As Tatone did (2016), we assume that the Public Administration uses a specific reputational mechanism: a weighted reputation auction. It is an award rule that penalizes companies that have behaved opportunistically in the past, and rewards companies that have respected contractual commitments. We show that this discriminatory competitive mechanism can lead contractors to deliver the required level of quality. Furthermore, we obtain that weighted reputation auction is a socially desirable mechanism. However, due to restrictive conditions on the utility function the PA cannot commit itself to adopting this kind of mechanism.

Keywords: Reputation, public procurement, auction theory, unverifiable quality

Jel codes: D82, H57, L14

  1. Albano G.L., Cesi B. (2008). Past performance evaluation in repeated procurement: a simple model of handicapping. Mimeo.
  2. Albano G.L., Cesi B., Iozzi A. (2017a). Public procurement with unverifiable quality: the case for discriminatory competitive procedures. Journal of Public Economics, 145: 14-26.
  3. Albano G.L., Cesi B., Iozzi A. (2017b). Teaching an old dog a new trick: reserve price and unverifiable quality in repeated procurement. CEIS Research Paper 404, Tor Vergata University, CEIS.
  4. Baron D.P., Myerson R.B. (1982). Regulating a monopolist with unknown costs. Econometrica, 50: 911-930.
  5. Branco F. (1997). The design of multidimensional auctions. Rand Journal of Economics, 28: 63-81.
  6. Calzolari G., Spagnolo G. (2013). Relational Contracts and Competitive Screening, precedentemente apparso come CEPR Discussion Paper n. DP7434, 2009. Mimeo.
  7. Che Y.K. (1993). Design competition through multidimensional auction. Rand Journal of Economics, 24: 668-680.
  8. Doni N. (2005). L’affidamento mediante gara di contratti pubblici: l’importanza della reputazione. Politica Economica, 21(2): 307-335.
  9. Doni N. (2006). The importance of reputation in awarding public contracts. Annals of Public and Cooperative Economics, 77(4): 401-429. Houser D., Wooders J. (2006). Reputation in Auctions: Theory, and Evidence from eBay. Journal of Economics and Management Strategy, 15(2): 353-370.
  10. Kelman S. (1990). Procurement and Public Management: the fear of discretion and the quality of government Performance. Washington: American Enterprise Institute.
  11. Kim I.G. (1998). A model of selective tendering: does bidding competition deter opportunism by contractor?. The Quarterly Review of Economics and Finance, 38: 907-925.
  12. Klein B., Leffler K.B. (1981). The role of market forces in assuring contractual performance. Journal of Political Economy, 89: 615-641.
  13. Klemperer P.D. (1999). Auction theory: a guide to the literature. Journal of Economic Surveys, 13(3): 227-286.
  14. Kreps D., Wilson R. (1981). Reputation and imperfect information. Journal of Economic Theory, 27: 253-279.
  15. Krishna V. (2002). Auction Theory. London: MIT Academic Press.
  16. Laffont J.J., Tirole J. (1987). Auctioning incentive contracts. Journal of Political Economy, 95: 921-937.
  17. Laffont J.J., Tirole J. (1993). A Theory of Incentives in Procurement and Regulation, Cambridge (Mass.): MIT Press.
  18. Levin J. (2003). Relational incentive contracts. The American Economic Review, 93: 835-857.
  19. Maasland E., Montangie Y., Van den Bergh R. (2004). Levelling the playing field in auctions and the prohibition of state aid. In: Jansen M.C.V. Auctioning Public Assets: Analysis and Alternatives. Cambridge (UK): Cambridge University Press.
  20. MacLeod W.B., Malcomson J.M. (1989). Implicit contracts, incentive compatibility and involuntary unemployment. Econometrica, 57: 447-480.
  21. Maskin E., Riley J. (1985). Auction Theory with private values. American Economic Review, 75(2): 150-155.
  22. Maskin E., Riley J. (2000). Asymmetric auctions. Review of Economic Studies, 67: 413-438.
  23. McAfee R.P., McMillan J. (1986). Bidding for contracts: a Principal-Agent analysis. Rand Journal of Economics, 17(3): 326-338.
  24. MacLeod W.B. (2003). Optimal contracting with subjective evaluation. American Economic Review, 93: 216-240.
  25. Myerson R.B. (1981). Optimal auction design. Mathematics of operations research, 6(1): 58-73.
  26. Montefiori M. (2001). Reputazione e soluzioni di equilibrio nei contratti tra acquirenti e fornitori di servizi sanitari. Economia Pubblica, 5: 63-96.
  27. Montefiori M. (2004). Reputazione come credibilità per comportamenti passati nei contratti tra acquirenti e fornitore di servizi sanitari. Politica Economica, 20(1): 89-116.
  28. Rogerson W.P. (1985). Repeated moral hazard. Econometrica, 53(1): 69-76.
  29. Shapiro C. (1983). Premiuns for high-quality products as returns to reputations. Quarterly Journal of Economics, 98: 659-679.
  30. Spagnolo G. (2012). Reputation, competition, and entry in procurement. International Journal of Industrial Organization, 30(3): 291-296.
  31. Spagnolo G., Dini F. (2004). Meccanismi reputazionali e mercati elettronici: problematiche economiche e possibili soluzioni per il public procurement. Quaderni Consip.
  32. Spulber D.F. (1990). Auction and contract enforcement. Journal of Law, Economics and Organization, 6: 325-344.
  33. Tatone G. (2007). L’asta pesata per la reputazione: una soluzione al problema della qualità negli appalti pubblici. Pubblicazioni Aperte Digitali della Sapienza.
  34. Tatone G. (2016). L’influenza dell’enforcement contrattuale sulla qualità della prestazione negli appalti pubblici: una rassegna teorica. Economia Pubblica, 2: 107-129.

Guido Tatone, La reputazione negli appalti pubblici: uno strumento socialmente desiderabile per risolvere il problema dello scadimento qualitativo in "ECONOMIA PUBBLICA " 1/2018, pp 59-85, DOI: 10.3280/EP2018-001003