Government and the Reverse-Holdup Problem
When the government bargains with a private firm, the firm cares about only its own profits, but the firm's profits may also enter into the government's utility function. As a result, the government will not bargain as aggressively for a low price. This can lead the government to "over pay" for quality. In contrast to the standard holdup problem, this reverse-holdup problem can give the firm an incentive to overinvest in non-contractible quality. The paper also discusses some examples where the reverse-holdup problem may explain excessive quality in government procurement. Copyright 2007 Blackwell Publishing, Inc..
Year of publication: |
2007
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Authors: | WICKELGREN, ABRAHAM L. |
Published in: |
Journal of Public Economic Theory. - Association for Public Economic Theory - APET, ISSN 1097-3923. - Vol. 9.2007, 2, p. 221-229
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Publisher: |
Association for Public Economic Theory - APET |
Saved in:
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