Malin ARVE - Toulouse School of Economics - "Procurement and debt"

Procurement and Debt

Malin Arve (TSE and EHESS, GREMAQ)

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.