Journal
RAND JOURNAL OF ECONOMICS
Volume 47, Issue 4, Pages 914-934Publisher
WILEY
DOI: 10.1111/1756-2171.12159
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Funding
- German Science Foundation (DFG) through the research unit Design and Behavior
- Fulbright Commission
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We compare two commonly used mechanisms in public procurement: auctions and negotiations. The execution of the procurement mechanism is delegated to an agent of the buyer. The agent has private information about the buyer's preferences and may collude with one of the sellers. We provide a general characterization of both mechanisms based on public scrutiny requirements and showcontrary to conventional wisdomthat an intransparent negotiation always yields higher social surplus than a transparent auction. Moreover, there exists a lower bound on the number of sellers such that the negotiation also generates a higher buyer surplus.
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