Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/94157
Authors: 
Krähmer, Daniel
Strausz, Roland
Year of Publication: 
2010
Series/Report no.: 
SFB/TR 15 Discussion Paper 303
Abstract: 
The paper studies procurement contracts with pre-project investigations in the presence of adverse selection and moral hazard. To model the procurer's roblem, we extend a standard sequential screening model to endogenous information acquisition with moral hazard. The optimal contract displays systematic distortions in information acquisition. Due to a rent effect, adverse selection induces too much information acquisition to prevent cost overruns and too little information acquisition to prevent false project cancelations. Moral hazard mitigates the distortions related to cost overruns yet exacerbates those related to false negatives. The optimal mechanism is a menu of option contracts that achieves the dual goal of providing incentives for information acquisition and truthful information revelation.
Subjects: 
Information acquisition
procurement
dynamic mechanism design
JEL: 
D82
H57
Persistent Identifier of the first edition: 
Document Type: 
Working Paper

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