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Auctions with Endogenous Participation and Quality Thresholds: Evidence from ODA Infrastructure Procurement

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  • Antonio Estache
  • A. Iimi

Abstract

Infrastructure projects are often technically complicated and highly customized. Therefore, procurement competition tends to be limited. Competition is the single most important factor toward auction efficiency and anti-corruption. However, the degree of competition realized is closely related to bidders’ entry decision and auctioneer’s decision on how to assess technical attributes in the bid evaluation process. The paper estimates the interactive effects among quality, entry and competition. With data on procurement auctions for electricity projects in developing countries, it is found that large electricity works are by nature costly and can attract only a few participants. The limited competition would raise government procurement costs. In addition, high technical requirements are likely to be imposed for these large-scale projects, which will in turn add extra costs for the better quality of works and limit bidder participation furthermore. The evidence suggests that the quality is of particular importance in large infrastructure projects and auctioneers cannot easily substitute prices for quality.

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Bibliographic Info

Paper provided by ULB -- Universite Libre de Bruxelles in its series Working Papers ECARES with number 2009_006.

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Length: 30 p.
Date of creation: 2009
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Handle: RePEc:eca:wpaper:2009_006

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Keywords: Public procurement; auction theory; infrastructure development; governance;

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References

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  1. Estache, Antonio & Guasch, Jose-Luis & Iimi, Atsushi & Trujillo, Lourdes, 2008. "Multidimensionality and renegotiation : evidence from transport-sector public-private-partnership transactions in Latin America," Policy Research Working Paper Series 4665, The World Bank.
  2. Robert H. Porter & J. Douglas Zona, 1999. "Ohio School Milk Markets: An Analysis of Bidding," RAND Journal of Economics, The RAND Corporation, vol. 30(2), pages 263-288, Summer.
  3. repec:att:wimass:9123 is not listed on IDEAS
  4. Estache, Antonio & Iimi, Atsushi, 2008. "Joint bidding in infrastructure procurement," Policy Research Working Paper Series 4664, The World Bank.
  5. Che, Yeon-Koo & Kim, Jinwoo, 2009. "Optimal collusion-proof auctions," Journal of Economic Theory, Elsevier, vol. 144(2), pages 565-603, March.
  6. Yeon-Koo Che, 1993. "Design Competition through Multidimensional Auctions," RAND Journal of Economics, The RAND Corporation, vol. 24(4), pages 668-680, Winter.
  7. McAfee, R. Preston & McMillan, John, 1987. "Auctions with entry," Economics Letters, Elsevier, vol. 23(4), pages 343-347.
  8. Antonio Estache & Atsushi Iimi, 2010. "Bidder Asymmetry in Infrastructure Procurement: Are There any Fringe Bidders?," Review of Industrial Organization, Springer, vol. 36(2), pages 163-187, March.
  9. Michael K. Price, 2008. "Using The Spatial Distribution Of Bidders To Detect Collusion In The Marketplace: Evidence From Timber Auctions," Journal of Regional Science, Wiley Blackwell, vol. 48(2), pages 399-417.
  10. Antonio Estache & A. Iimi, 2008. "Procurement Efficiency for Infrastructure Development and Financial Needs Reassessed," Working Papers ECARES 2008_022, ULB -- Universite Libre de Bruxelles.
  11. Srabana Gupta, 2002. "Competition and collusion in a government procurement auction market," Atlantic Economic Journal, International Atlantic Economic Society, vol. 30(1), pages 13-25, March.
  12. Patrick Bajari & Robert S. McMillan & Steve Tadelis, 2003. "Auctions Versus Negotiations in Procurement: An Empirical Analysis," NBER Working Papers 9757, National Bureau of Economic Research, Inc.
  13. Rajiv Vohra & In-Koo Cho & Kevin Jewell, 2002. "A simple model of coalitional bidding," Economic Theory, Springer, vol. 19(3), pages 435-457.
  14. Cripps, Martin & Ireland, Norman, 1994. "The Design of Auctions and Tenders with Quality Thresholds: The Symmetric Case," Economic Journal, Royal Economic Society, vol. 104(423), pages 316-26, March.
  15. Porter, Robert H & Zona, J Douglas, 1993. "Detection of Bid Rigging in Procurement Auctions," Journal of Political Economy, University of Chicago Press, vol. 101(3), pages 518-38, June.
  16. C.E. Moody Jr. & W.J. Kruvant, 1988. "Joint Bidding, Entry, and the Price of OCS Leases," RAND Journal of Economics, The RAND Corporation, vol. 19(2), pages 276-284, Summer.
  17. Atsushi Iimi, 2006. "Auction Reforms for Effective Official Development Assistance," Review of Industrial Organization, Springer, vol. 28(2), pages 109-128, 03.
  18. Klein, Michael, 1998. "Bidding for concessions," Policy Research Working Paper Series 1957, The World Bank.
  19. Levin, Dan & Smith, James L, 1994. "Equilibrium in Auctions with Entry," American Economic Review, American Economic Association, vol. 84(3), pages 585-99, June.
  20. Hendricks, Kenneth & Porter, Robert H, 1992. "Joint Bidding in Federal OCS Auctions," American Economic Review, American Economic Association, vol. 82(2), pages 506-11, May.
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Cited by:
  1. Arno Van Der Vlist & Sander Hardeman, 2011. "On the Design of Public Infrastructure procurements," ERSA conference papers ersa10p1060, European Regional Science Association.

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