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Uncertainty In Procurement Contracting With Time Incentives

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  • Wenzheng Gao
  • Daiqiang Zhang
  • Naibao Zhao

Abstract

This article studies cost‐plus‐time (A+B) procurement contracting with time incentives in the highway construction industry. In the presence of construction uncertainty, the contractor's actual completion time may deviate from the bid completion time, and the A+B contract design is not ex post efficient. Using data from highway procurement contracts in California, we show that an ex post efficient lane rental contract would reduce the social cost by $41.39 million (43.11%) on average. Moreover, the average commuter cost would decrease by $62.06 million (78.96%), suggesting a substantial reduction in the construction externality to commuters from lane rental contracts.

Suggested Citation

  • Wenzheng Gao & Daiqiang Zhang & Naibao Zhao, 2021. "Uncertainty In Procurement Contracting With Time Incentives," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 62(3), pages 1153-1197, August.
    • Handle: RePEc:wly:iecrev:v:62:y:2021:i:3:p:1153-1197
    DOI: 10.1111/iere.12509
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    References listed on IDEAS

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