Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/204492
Authors: 
Gretschko, Vitali
Pollrich, Martin
Year of Publication: 
2019
Series/Report no.: 
ZEW Discussion Papers 19-040
Abstract: 
We analyze the problem of a buyer who purchases a long-term project from one of several suppliers. A changing state of the world influences the costs of the suppliers. Complete contracts conditioning on all future realizations of the state are infeasible. We show that contractual incompleteness comes without a cost. The buyer achieves the same surplus with complete and incomplete contracts. The key insight is that the allocation prescribed by optimal complete contracts is sequentially optimal with incomplete contracts if the buyer does not receive too much information ex-interim. We show that the English auction restricts the information optimally.
Subjects: 
incomplete contracts
repeated relationships
procurement
commitment
JEL: 
D44
D82
H57
Document Type: 
Working Paper

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