Procurement with unenforceable contract time and the law of liquidated damages

Arbeitspapier

Time overruns are common in public works and are not confined to inherently complex tasks. One explanation advanced in this paper is that bidders can undergo unpredictable changes in production costs which generate an option value of waiting. By exploiting the real-option approach, we examine how the inability to force sellers to meet the contract time influences their bidding behaviour, and how this can ultimately affect the parties' expected payoffs. Further, we examine the outcome of the bidding process when legal rules prevent the promisee from contracting for damage measures which would grant more than her lost expectation. We show that when the pre-agreed compensatory payments prove insufficient to discourage delayed orders, setting a liquidated damages clause would not lead to a Pareto superior outcome with respect to the no-damage-for delay condition. While such a clause would increase the seller's expected payoff, the buyer's expected payoff is lower than when the contract does not provide for any compensation for late-delivery.

Angaben zum Objekt

• Sprache: Englisch

Verweise und Beziehungen

• Erschienen in: Series: Nota di Lavoro ; No. 45.2012

Klassifikation und Themen

• Klassifikation: Wirtschaft ; Optimization Techniques; Programming Models; Dynamic Analysis ; Auctions ; Economics of Contract: Theory ; Contract Law
• Thema: Public Procurement ; Fixed-Price Contracts ; Cost Uncertainty ; Time Overruns ; Liquidated Damages ; Real Options

Beteiligte, Orts- und Zeitangaben

• Ereignis: Geistige Schöpfung
• (wer): Dosi, Cesare ; Moretto, Michele
• Ereignis: Veröffentlichung
• (wer): Fondazione Eni Enrico Mattei (FEEM)
• (wo): Milano
• (wann): 2012

Weitere Informationen

• Handle: http://hdl.handle.net/10419/59708
• Letzte Aktualisierung: 10.03.2025, 11:44 MEZ