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An Unsuccessful Reform on the Local Public Contracts Law in Korea

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  • Hwang, Sundoo

Abstract

In Korea, local governments and local agencies had to apply a version of the first price auction augmented by an ex-post screening process when they procure construction contracts. However, this first price auction had been criticized because it was felt that too much price competition could lead to poor ex-post performance in construction. In response, the existing auction method was recently replaced by a version of the average price auction with a similar screening process. This paper empirically examines the effectiveness of this reform and finds that the replacement only increases the fiscal burden of local governmental bodies without making any improvement in the ex-post performance.

Suggested Citation

  • Hwang, Sundoo, 2021. "An Unsuccessful Reform on the Local Public Contracts Law in Korea," KDI Journal of Economic Policy, Korea Development Institute (KDI), vol. 43(3), pages 55-77.
    • Handle: RePEc:zbw:kdijep:243311
    DOI: 10.23895/kdijep.2021.43.3.55
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    References listed on IDEAS

    as
    1. Gregory Lewis & Patrick Bajari, 2014. "Moral Hazard, Incentive Contracts, and Risk: Evidence from Procurement," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 81(3), pages 1201-1228.
    2. Francesco Decarolis, 2014. "Awarding Price, Contract Performance, and Bids Screening: Evidence from Procurement Auctions," American Economic Journal: Applied Economics, American Economic Association, vol. 6(1), pages 108-132, January.
    3. R. Preston McAfee & John McMillan, 1986. "Bidding for Contracts: A Principal-Agent Analysis," RAND Journal of Economics, The RAND Corporation, vol. 17(3), pages 326-338, Autumn.
    4. Patrick Bajari & Stephanie Houghton & Steven Tadelis, 2014. "Bidding for Incomplete Contracts: An Empirical Analysis of Adaptation Costs," American Economic Review, American Economic Association, vol. 104(4), pages 1288-1319, April.
    5. Gregory Lewis & Patrick Bajari, 2011. "Procurement Contracting With Time Incentives: Theory and Evidence," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 126(3), pages 1173-1211.
    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    Local Government; Procurement; Average Price Auction; Screening; Price Competition; Ex-Post Performance;
    All these keywords.

    JEL classification:

    • D44 - Microeconomics - - Market Structure, Pricing, and Design - - - Auctions
    • H57 - Public Economics - - National Government Expenditures and Related Policies - - - Procurement
    • K12 - Law and Economics - - Basic Areas of Law - - - Contract Law

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