(Un)bundling infrastructure procurement: Evidence from water supply and sewage projects
AbstractPublic infrastructure has long been faced with difficulty in financing. Available public resources are often limited in many countries. Competitive bidding in public procurement systems is an important instrument to contain the public investment costs. But competition is often limited in the infrastructure sector. In such circumstances, better public procurement design can save a lot of public resources. There is a general tradeoff between the competition effect and economies of scale and scope; large contracts can benefit from the scale and scope effects but have to compromise competition. The unbundling approach can foster competition but may suffer from diseconomies of scale and scope. Using procurement data from water supply and sewage projects in developing countries, the paper analyzes the effects of the (un)bundling strategy on bidders' entry and bidding behavior. It shows that the bidder cost structure exhibits significant diseconomies of scope between two main public works in this sector, i.e., treatment plant construction and distribution network installation. There is no clear evidence of the competition effect. Therefore, there is no rationale of bundling these two works into a single contract. Unbundling can help governments to contain public infrastructure costs.
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Bibliographic InfoArticle provided by Elsevier in its journal Utilities Policy.
Volume (Year): 19 (2011)
Issue (Month): 2 (June)
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Web page: http://www.elsevier.com/locate/inca/30478
Public procurement Auction theory Infrastructure development Governance;
Other versions of this item:
- Estache, Antonio & Iimi, Atsushi, 2009. "(UN)Bundling infrastructure procurement : evidence from water supply and sewage projects," Policy Research Working Paper Series 4854, The World Bank.
- Antonio Estache & A. Iimi, 2009. "(Un)Bundling Infrastructure Procurement: Evidence from Water Supply and Sewage Projects," Working Papers ECARES 2009_007, ULB -- Universite Libre de Bruxelles.
- D44 - Microeconomics - - Market Structure and Pricing - - - Auctions
- H54 - Public Economics - - National Government Expenditures and Related Policies - - - Infrastructures
- H57 - Public Economics - - National Government Expenditures and Related Policies - - - Procurement
- C21 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Cross-Sectional Models; Spatial Models; Treatment Effect Models
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