Abstract
A model of procurement contracting is developed and tested in laboratory experiments. Market performance results are presented for both fixed-price and cost-sharing contracts. Contracts are awarded with first-price sealed-bid or second-price sealed-bid auctions. The environment contains post-auction cost uncertainty and opportunity for unmonitored effort in contract cost reduction. Cost-sharing contracts are found to reduce procurement expense but also to be inefficient because of their induced moral hazard waste and cost overruns.Journal of Economic LiteratureClassification Numbers: C72, C92, D44, D61, D82, H57, L14.
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