@techreport{publications15020,
          volume = {09-128},
           month = {December},
          author = {Klenio Barbosa},
          series = {TSE Working Paper},
       booktitle = {TSE Working Paper},
           title = {Free Riding in Procurement Design},
            type = {Working Paper},
       publisher = {TSE Working Paper},
            year = {2009},
        keywords = {free-riding, procurement, multibuyers},
             url = {https://publications.ut-capitole.fr/id/eprint/15020/},
        abstract = {Low-powered contracts do not provide proper incentives to reduce cost; still empirical studies show that they are quite pervasive in public and private procurement. This paper argues that low-powered contracts arise due to a free-riding problem when the contractor enjoys economies of scale/scope working for different buyers. A buyer, offering a procurement contract to the contractor, does not fully internalize that higher-powered incentives provide cost reduction in the contractor's activities, benefiting other buyers. As a result, buyers offer lower-powered contracts than what would be designed by cooperative buyers. Strikingly, the higher the contractor's benefits from economies of scope/scale are, the lower the power of the procurement contracts will be. In addition, laws which force buyers to award fixed-price contracts can be welfare-enhancing.}
}