The DOI matches its Crossref record.
Bidding for Contracts: A Principal-Agent Analysis
Abstract
This article models the process of bidding for government contracts in the presence of moral hazard. Several (possibly risk-averse) potential contractors (agents) submit sealed bids, on the basis of which the government (principal) selects one to perform a task. The optimal linear contract is derived. The bidding process induces the potential agents to reveal their relative expected costs. The optimal contract trades off giving the chosen agent an incentive to limit costs against stimulating bidding competition and sharing risks. The optimal contract is never cost-plus, may be fixed-price, but is usually an incentive contract. Some prescriptions for government contracting emerge.
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Citations
Cited by
Performance Contracting in After-Sales Service Supply Chains
Kim, S.-H., Cohen, M. A., & Netessine, S. (2007) · Management Science · doi:10.1287/mnsc.1070.0741 · Cited by 520
Algorithmic monoculture and social welfare
(2023) · The Societal Impacts of Algorithmic Decision-Making · doi:10.1145/3603195.3603202
Metadata
- Authors
- McAfee, R. P., & McMillan, J.
- Venue
- The RAND Journal of Economics
- Publisher
- Wiley
- Published
- 1986
- Volume
- 17
- Issue
- 3
- Pages
- 326
- ISSN
- 0741-6261 (ISSN-L)
- OpenAlex
- W2034730278
- Cited by
- 421
- References
- 0
- FWCI
- 9.87
- Type
- journal article
- Language
- en
- Open access
- closed
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- CoChat. (2026). Citation check: Bidding for Contracts: A Principal-Agent Analysis. https://app.cochat.ai/papers/10.2307/2555714
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- McAfee, R. P., & McMillan, J. (1986). Bidding for Contracts: A Principal-Agent Analysis. The RAND Journal of Economics. https://doi.org/10.2307/2555714
Data sources
Bibliographic data: Semantic Scholar, OpenAlex, Crossref.
Contains information from the Semantic Scholar Academic Graph Datasets, made available under the ODC Attribution License (ODC-BY 1.0).
Semantic Scholar’s data is described in: Kinney, R., et al. (2023). The Semantic Scholar Open Data Platform. arXiv:2301.10140.
