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Tenders with Different Risk Preferences in Construction Industry

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Author Info
Fangcheng Tang () (School of Economics and Management, Tsinghua University)
Weizhou Zhong () (School of Economics and Finance, Xi'an Jiaotong University)
Shunfeng Song () (Department of Economics, University of Nevada, Reno)

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Abstract

Underlying the fact that different tenderers have different preferences on risk-taking, this study investigates the different tenderers' behaviors in one-shot construction bid auctions. Our model extends the preconditions of previous assumption that all tenderers are characterized by neutral risk-taking in the original tendering model for lowest-price sealed tender. A general tendering model for the lowest-price sealed tender is established to explain the behavior of tenderers during the tendering. The results indicate that construction estimate is affected by the degree of uncertainties in the construction industry. Therefore, in a lowest-price sealed tender, risk-averse tenders would tender a higher price and conversely risk-seeking tenderers would tender a lower price when risk-neutral tenderers would tender a middle price. However, the risk-seeking tenderers are more likely to win the bid.

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File URL: http://www.business.unr.edu/econ/wp/papers/UNRECONWP06006.pdf
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File Function: First version, 2006
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Publisher Info
Paper provided by University of Nevada, Reno, Department of Economics & University of Nevada, Reno , Department of Resource Economics in its series Working Papers with number 06-006.

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Length: 20 pages
Date of creation: Dec 2006
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Handle: RePEc:unr:wpaper:06-006

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Related research
Keywords: Auction; tender; uncertainty; preference; construction industry;

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Find related papers by JEL classification:
D44 - Microeconomics - - Market Structure and Pricing - - - Auctions
L74 - Industrial Organization - - Industry Studies: Primary Products and Construction - - - Construction

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    Other versions:
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  7. Levin, Dan & Smith, James L, 1994. "Equilibrium in Auctions with Entry," American Economic Review, American Economic Association, vol. 84(3), pages 585-99, June. [Downloadable!] (restricted)
  8. Bernard Caillaud & Philippe Jehiel, 1998. "Collusion in Auctions with Externalities," RAND Journal of Economics, The RAND Corporation, vol. 29(4), pages 680-702, Winter. [Downloadable!] (restricted)
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  11. McAfee, R Preston & McMillan, John, 1987. "Auctions and Bidding," Journal of Economic Literature, American Economic Association, vol. 25(2), pages 699-738, June. [Downloadable!] (restricted)
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  16. Keith Waehrer & Ronald M. Harstad & Michael H. Rothkopf, 1998. "Auction Form Preferences of Risk-Averse Bid Takers," RAND Journal of Economics, The RAND Corporation, vol. 29(1), pages 179-192, Spring. [Downloadable!] (restricted)
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  18. K. Goeree & Theo Offerman, 2002. "Efficiency in Auctions with Private and Common Values: An Experimental Study," American Economic Review, American Economic Association, vol. 92(3), pages 625-643, June. [Downloadable!]
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  19. Jacob K. Goeree & Theo Offerman, 2003. "Competitive Bidding in Auctions with Private and Common Values," Economic Journal, Royal Economic Society, vol. 113(489), pages 598-613, 07. [Downloadable!] (restricted)
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  20. Harstad, Ronald M. & Kagel, John H. & Levin, Dan, 1990. "Equilibrium bid functions for auctions with an uncertain number of bidders," Economics Letters, Elsevier, vol. 33(1), pages 35-40, May. [Downloadable!] (restricted)
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    Other versions:
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