Procurement Contracting With Time Incentives: Theory and Evidence
AbstractIn public procurement, social welfare often depends on how quickly the good is delivered. A leading example is highway construction, where slow completion inflicts a negative externality on commuters. In response, highway departments award some contracts using scoring auctions, which give contractors explicit incentives for accelerated delivery. We characterize efficient design of these mechanisms. We then gather an extensive data set of highway projects awarded by the California Department of Transportation between 2003 and 2008. By comparing otherwise similar contracts, we show that where the scoring design was used, contracts were completed 30--40% faster and the welfare gains to commuters exceeded the increase in procurement costs. Using a structural model that endogenizes participation and bidding, we estimate that the counterfactual welfare gain from switching all contracts from the standard design to the efficient A+B design is nearly 22% of the total contract value ($1.14 billion). Copyright 2011, Oxford University Press.
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Bibliographic InfoArticle provided by Oxford University Press in its journal The Quarterly Journal of Economics.
Volume (Year): 126 (2011)
Issue (Month): 3 ()
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Other versions of this item:
- Patrick Bajari & Gregory Lewis, 2009. "Procurement Contracting with Time Incentives: Theory and Evidence," NBER Working Papers 14855, National Bureau of Economic Research, Inc.
- D02 - Microeconomics - - General - - - Institutions: Design, Formation, and Operations
- D21 - Microeconomics - - Production and Organizations - - - Firm Behavior: Theory
- D44 - Microeconomics - - Market Structure and Pricing - - - Auctions
- H57 - Public Economics - - National Government Expenditures and Related Policies - - - Procurement
- L0 - Industrial Organization - - General
- L74 - Industrial Organization - - Industry Studies: Primary Products and Construction - - - Construction
- L7 - Industrial Organization - - Industry Studies: Primary Products and Construction
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