Marieke Huysentruyt, HEC Paris
Why do for-profit companies compete with non-profit organisations to access development aid contracts?
How do the bidding strategies of non-profits and for-profits for incomplete government procurement contracts differ? This paper uses archival data on scoring auctions to investigate the impacts of contractual rigidity, discretion and information asymmetries on markets for social goods. For-profits are at a comparative advantage when contracts are rigid, define simple transactions with low ex post information asymmetries; non-profits when contracts allow for high discretion, involve complex transactions with high asymmetries. Cross-sector competition occurs when contracts allow for some discretion, define ‘hybrid’ services with moderate ex post asymmetries. We explain why contracting-out to for-profits involves higher renegotiation costs ex post, and contracting-out to non-profits invokes an accountability vacuum. These results can anchor new theorizing on contract incompleteness and intricate interdependencies between public and private interests.