Article ID | Journal | Published Year | Pages | File Type |
---|---|---|---|---|
957085 | Journal of Economic Theory | 2007 | 9 Pages |
Abstract
Laffont and Tirole's [Using cost observation to regulate firms, J. Polit. Econ. 94 (1986) 614–641] pioneering analysis identifies the optimal procurement contract when the supplier can readily inflate his innate production cost without detection. When the buyer has some ability to limit such cost inflation, an alternative contract can outperform the contract identified by Laffont and Tirole. The alternative contract induces substantial pooling, discontinuous production costs and effort supply, and rent that varies non-monotonically with innate cost.
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Economics and Econometrics
Authors
Leon Yang Chu, David E.M. Sappington,