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Auctions for Public Construction with Corner-cutting

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  • Kenju Akai
  • Shigehiro Serizawa

Abstract

This paper reports the theoretical and experimental results of auctions for public construction in which firms cut corners. We show that the winning bids and the winner's quality choices of the constructed buildings are both zero in equilibria if there are at least two firms whose initial cash balances are zero, and it is a common knowledge. The experimental results are close to the theoretical results and indicate that firms with zero-initial cash balance win and that the winning bids and the winner's quality choices of the constructed buildings are considerably low.

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File URL: http://www.iser.osaka-u.ac.jp/library/dp/2009/DP0740R.pdf
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Bibliographic Info

Paper provided by Institute of Social and Economic Research, Osaka University in its series ISER Discussion Paper with number 0740r.

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Date of creation: May 2009
Date of revision: Jul 2010
Handle: RePEc:dpr:wpaper:0740r

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  1. Sinclair-Desgagne, Bernard, 1990. "On the regulation of procurement bids," Economics Letters, Elsevier, vol. 33(3), pages 229-232, July.
  2. Cox, James C. & Isaac, R. Mark, 2008. "Procurement Contracting," Handbook of Experimental Economics Results, Elsevier.
  3. Urs Fischbacher, 2007. "z-Tree: Zurich toolbox for ready-made economic experiments," Experimental Economics, Springer, vol. 10(2), pages 171-178, June.
  4. Dufwenberg, Martin & Gneezy, Uri, 1998. "Price Competition and Market Concentration: An Experimental Study," Working Paper Series 1998:8, Uppsala University, Department of Economics.
  5. Juan José Ganuza, 2003. "Competition and cost overruns in procurement," Economics Working Papers 772, Department of Economics and Business, Universitat Pompeu Fabra.
  6. Dasgupta, Sudipto & Spulber, Daniel F., 1989. "Managing procurement auctions," Information Economics and Policy, Elsevier, vol. 4(1), pages 5-29.
  7. von Ungern-Sternberg, Thomas, 1994. "Quality incentives in auctions for construction contracts," International Journal of Industrial Organization, Elsevier, vol. 12(1), pages 89-104, March.
  8. Alejandro M. Manelli & Daniel R. Vincent, 1992. "Optimal Procurement Mechanisms," Discussion Papers 999, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
  9. Aleix Calveras & Juan J. Ganuza & Esther Hauk, 2001. "Wild bids. Gambling for resurrection in procurement contracts," Economics Working Papers 553, Department of Economics and Business, Universitat Pompeu Fabra, revised Apr 2001.
  10. Dufwenberg, Martin & Gneezy, Uri, 2002. "Information disclosure in auctions: an experiment," Journal of Economic Behavior & Organization, Elsevier, vol. 48(4), pages 431-444, August.
  11. Che, Y.K., 1991. "Design Competition through Multidimensional Auctions," Working papers 9123, Wisconsin Madison - Social Systems.
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