A Contest Model of Liberalizing Government Procurements
Long, Ngo Van; Stähler, Frank
This paper models government procurements as a contest among domestic firms, and – in case of liberalization – domestic and foreign firms. Liberalizing procurements reduces wasteful domestic lobbying but also increases the likelihood that a foreign firm will capture the rent. We show that the domestic welfare change is not monotonic in the foreign firms' abilities. Domestic welfare increases only if the gross surplus generated by foreign firms is sufficiently large. Furthermore, we show that, from the global welfare point of view, domestically optimal liberalization policies can be either excessive or too restrictive.
Publisher: Department of Economics, University of Otago
Series number: 803
Keywords: Trade liberalization; trade in services; government procurements
Research Type: Discussion Paper