Rethinking Government Supplier Decisions: The Economic Evaluation of Alternatives (EEoA)

Abstract

This paper offers an economic model to assist public procurement officials in ranking competing vendors when benefits cannot be monetized. An important defense application is “source selection”—choosing the most cost-effective vendor to supply military equipment, facilities, services, or supplies. The problem of ranking public investment alternatives when benefits cannot be monetized has spawned an extensive literature that underpins widely applied decision tools. The bulk of the literature, and most government-mandated decision tools, focuses on the demand side of a public procurement. The “economic evaluation of alternatives” (EEoA) extends the analysis to the supply side. A unique feature of EEoA is to model vendor decisions in response to government funding projections. Given a parsimonious set of continuously differentiable evaluation criteria, EEoA provides a new tool to rank vendors. In other cases, it offers a valuable consistency check to guide government supplier decisions.