Optimal public procurement design from perspective of mechanism design theory

The economic and social importance of public procurement, which has reached an important scale globally, is on the rise day by day. Since public procurement market covers a serious portion of national economy, it is necessary to boost the efficiency of procurement process. Achieving the efficiency of public procurement market is crucial not only to use public resources efficiently and effectively, but also to increase social benefit (welfare). This study aims to offer optimal solutions towards achieving the efficiency of public procurement process. For that purpose, problems originating from imperfect competition and asymmetric information which lead to the failure of procurement mechanism – which is the process of procuring the most economical and the highest quality goods, services or construction jobs – are examined. Also, the unfavorable situations caused by aforementioned problems in public procurement market are analysed; ways of overcoming the obstacles that cause public procurement markets to diverge from operating efficiently are discussed in light of Mechanism Design Theory; finally optimal and applicable regulation advice are offered utilizing the results of theoretical discussion. Keywords: Mechanism Design Theory, Optimal Static Mechanism, Revelation Principle, İncentive Contracts, Principal-Agent Problem.