Subcontracting is a widespread use in procurement contracting. However, subcontracting regulation differs between countries. In the USA e.g., each bidder is required to submit the potential subcontracting plan before the award of contracts when they exceed $500,000 ($1,000,000 for construction)....

We reexamine the mechanism of prospective reimbursement when the regulator does not observe hospitals? cost characteristics, which can depend on exogenous variables and idiosyncratic shocks. In this framework, we formally develop the "reduced-form" of yardstick competition, which allows the...