ISF WP 2013-3 - page 4

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Contents
Abstract.......................................................................................................................... 3
Statement of the problem ............................................................................................. 5
Background ............................................................................................................ 5
Problem posed and restrictions on the solution.................................................... 6
Earlier Work ........................................................................................................... 6
Methodological Issues ................................................................................................... 8
The Problem of Evaluation..................................................................................... 8
Producer Behavior.................................................................................................. 9
Standard Model...................................................................................................... 9
Problems with the standard model ..................................................................... 10
Alternative Description ........................................................................................ 11
Behavior among Procuring Entities...................................................................... 13
Mathematical Preliminaries......................................................................................... 15
Computing the Threshold Value .................................................................................. 17
Quality Aspects..................................................................................................... 17
Gains..................................................................................................................... 18
Costs ..................................................................................................................... 19
Choice of Threshold Value ................................................................................... 19
Data.............................................................................................................................. 20
Results and Analysis..................................................................................................... 22
Gains..................................................................................................................... 22
Costs ..................................................................................................................... 22
Optimal Threshold Value ..................................................................................... 24
An Example........................................................................................................... 25
Price versus Quality ..................................................................................................... 26
Conclusion.................................................................................................................... 27
Acknowledgements ..................................................................................................... 30
References ................................................................................................................... 31