Malin ARVE (Toulouse School of Economics)
“Procurement and debt”
Malin Arve (TSE and EHESS, GREMAQ)
Abstract: This paper studies dynamic procurement design and the effect of bankruptcy on this design. Firms differ in their ability to self-finance their presence in the market. The author studies the optimal financial contract for the firm in need of funding and the optimal procurement contract in a setting with both a self-financed and a cash-constrained firm. This paper identifies two reasons, the sampling and duality effect, for favoring the financially weak firm and and one reason, the predatory effect, for not doing so.