Public procurements as a principal-agent contract

Abstract

The agency, as well as restrictions on information are an important issue in the public procurements market. In principal-agent contracts parries to such contracts do not need to have the same knowledge of the subject of the exchange under the contract and the asymmetry of information does indeed determine the behaviour of parties to an agency contract. Hence the terms of an
optimal contract differ from one where both parties have full information. There are four possible ways to mitigate this situation. They are: tender, a large scope of the market, drafting proper contracts and monitoring the contracting parties. The gravity of the problems relating to the agency requires implementation of further solutions, including legal ones.