Rodrigo Bomfim de Andrade

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Working Papers

This paper studies cost-based procurement under dynamic asymmetric information. We present a principal-agent model addressing how prospective information about project characteristics (forecasts) elicited from the concessionaire can be incorporated into the remuneration mechanism to improve rent extraction and reduce distortions. The optimal mechanism is implemented by a dynamic menu: the agent first chooses a level of concession fee due at contract signature and, after observing the project’s actual cost, chooses a linear remuneration policy from a contingent menu. The latter exhibits increasing incentive power the more aggressive were the previous forecast report, revealed by the fee choice. We also provide extensions of the basic model that (i) consider the option of project cancellation if expected net benefits are negative, and (ii) consider multiple firms bidding for the contract in a competitive process.

This paper studies the problem of concession design under ex-post exit rights. It builds on a dynamic environment that models the optimal design of a procurement partnership with evolving information about project cost. However, the firm is entitled to withdraw from the project after discovering its true cost. Thus, contract design must respect ex-post individual rationality, which is interpreted as limited liability in procurement. The optimal mechanism pools first-period signals into a single contract, and conditions the incentive scheme solely on second-period reports. The effects of exit rights on distortions, on the regulator’s value function, and on social welfare is computed in a numerical exercise. The analysis suggests there is an optimal level of limited liability protection, associated to the threshold of optimality for the pooling mechanism.

This paper studies robust procurement mechanisms under cost observability. It presents a model set up in Laffont and Tirole’s (1986) canonical environment, in which the procuring authority optimizes the rent-efficiency tradeoff with a menu of linear reimbursement schemes. However, the principal is assumed to be non-Bayesian, in that she cannot form a prior belief over the shape of asymmetric information, but only knows the first two moments of the type-distribution. We call the solution to the associated min-max problem a “robust procurement contract” and characterize it analytically for a special case formulation. The principal’s min-max value function is proposed as a robust project selection criterion, i.e. a template for choosing among production technologies with different mean-variance profiles, so to avoid potentially large losses from prior misspecification.

Work in progress

This project consists of an empirical analysis of efficiency gains from high-powered incentives in public-private partnerships. In theory, high-powered incentives make the concessionaire a residual claimant to cost savings, thus inducing the firm to invest in performance-enhancing activities. Just how productive is the effort to improve performance matters to calibrate the optimal contract, and influences the probability that the firm chooses to operate under strong incentives for efficiency. We propose to adapt the methodology for estimating models with asymmetric information in order to recover structural parameters of the Fixed-Price/Cost-Reimbursement model of Rogerson (2003), with data on highway concession contracts in Brazil. The key parameter of interest is the first-best social value of effort. The advantage of structural parameter estimates resides in their usefulness to perform counterfactual policy experiments.

Thesis workshops

Presentation title

Date

File

Sequential nonlinear pricing with ex-post participation constraints

June 12th 2018

Slides

Procurement policies under dynamic asymmetric information

May 2nd 2017

Slides

Dynamic procurement design with ex-post participation

Dec 16th 2016

Slides

Using performance bonds in procurement: a sequential mechanism design approach

Sep 6th 2016

Slides

Robust incentive contracts in cost-based procurement

Jun 12th 2015

Slides

Sequential cost-reimbursement rules

Feb 25th 2014

Slides

Teaching Assistance


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RodrigoAndrade (last edited 2019-07-10 15:37:00 by RodrigoAndrade)