Outsourcing in Contests

31 Pages Posted: 10 Mar 2006

See all articles by Frode Meland

Frode Meland

University of Bergen - Department of Economics

Odd Rune Straume

University of Minho - Economic Policies Research Unit (NIPE); CESifo (Center for Economic Studies and Ifo Institute)

Date Written: February 2006

Abstract

We study ex post outsourcing of production in an imperfectly discriminating contest, interpreted here as a research tournament or a procurement contest for being awarded some production contract. We find that the possibility of outsourcing increases competition between the contestants, leading to higher total contest effort, unless the ex-post bargaining strength of the contest winner is sufficiently low and/or there are very few contestants. However, even in the case of two contestants, outsourcing reduces the procurement costs of inducing a given level of effort if the contest organizer can collect entry fees. With respect to contest design, this suggests that outsourcing should generally be allowed if the objective is to induce stronger competition.

Keywords: contests, outsourcing, bargaining, contest design

JEL Classification: D44, L23, L24

Suggested Citation

Meland, Frode and Straume, Odd Rune, Outsourcing in Contests (February 2006). CESifo Working Paper Series No. 1658, Available at SSRN: https://ssrn.com/abstract=889511

Frode Meland

University of Bergen - Department of Economics ( email )

Fosswinckelsgt. 6
N-5007 Bergen, 5007
Norway
+47 5 558 9230 (Phone)
+47 5 558 9210 (Fax)

Odd Rune Straume (Contact Author)

University of Minho - Economic Policies Research Unit (NIPE) ( email )

Campus de Gualtar
Braga, 4710-057
Portugal

CESifo (Center for Economic Studies and Ifo Institute)

Poschinger Str. 5
Munich, DE-81679
Germany

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