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Auctions with endogenous participation and quality thresholds : evidence from ODA infrastructure procurement

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  • Estache, Antonio
  • Iimi, Atsushi

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 the auctioneer's decision on how to assess technical attributes in the bid evaluation process. This 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 further limit bidder participation. The evidence suggests that quality is of particular importance in large infrastructure projects and auctioneers cannot easily substitute price for quality.

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Bibliographic Info

Paper provided by The World Bank in its series Policy Research Working Paper Series with number 4853.

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Date of creation: 01 Mar 2009
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Handle: RePEc:wbk:wbrwps:4853

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Keywords: Government Procurement; Investment and Investment Climate; E-Business; Markets and Market Access; Economic Theory&Research;

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References

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  1. Levin, Dan & Smith, James L, 1994. "Equilibrium in Auctions with Entry," American Economic Review, American Economic Association, vol. 84(3), pages 585-99, June.
  2. 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.
  3. Estache, Antonio & Iimi, Atsushi, 2008. "Joint bidding in infrastructure procurement," Policy Research Working Paper Series 4664, The World Bank.
  4. Antonio Estache & A. Iimi, 2008. "Bidder Asymmetry in Infrastructure Procurement: Are There any Fringe Bidders?," Working Papers ECARES 2008_020, ULB -- Universite Libre de Bruxelles.
  5. 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.
  6. Yeon-Koo Che & Jinwoo Kim, 2007. "Optimal Collusion-Proof Auctions," Discussion Papers, Columbia University, Department of Economics 0708-05, Columbia University, Department of Economics.
  7. Estache, Antonio & Iimi, Atsushi, 2008. "Procurement efficiency for infrastructure development and financial needs reassessed," Policy Research Working Paper Series 4662, The World Bank.
  8. Klein, Michael, 1998. "Bidding for concessions," Policy Research Working Paper Series 1957, The World Bank.
  9. McAfee, R. Preston & McMillan, John, 1987. "Auctions with entry," Economics Letters, Elsevier, vol. 23(4), pages 343-347.
  10. Patrick Bajari & Robert McMillan & Steven Tadelis, . "Auctions versus Negotiations in Procurement: An Empirical Analysis," Working Papers, Stanford University, Department of Economics 02007, Stanford University, Department of Economics.
  11. Porter, Robert H & Zona, J Douglas, 1993. "Detection of Bid Rigging in Procurement Auctions," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 101(3), pages 518-38, June.
  12. Rajiv Vohra & In-Koo Cho & Kevin Jewell, 2002. "A simple model of coalitional bidding," Economic Theory, Springer, vol. 19(3), pages 435-457.
  13. 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.
  14. 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.
  15. Che, Y.K., 1991. "Design Competition through Multidimensional Auctions," Working papers, Wisconsin Madison - Social Systems 9123, Wisconsin Madison - Social Systems.
  16. Cripps, Martin & Ireland, Norman, 1994. "The Design of Auctions and Tenders with Quality Thresholds: The Symmetric Case," Economic Journal, Royal Economic Society, Royal Economic Society, vol. 104(423), pages 316-26, March.
  17. 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, Wiley Blackwell, vol. 48(2), pages 399-417.
  18. 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.
  19. Atsushi Iimi, 2006. "Auction Reforms for Effective Official Development Assistance," Review of Industrial Organization, Springer, vol. 28(2), pages 109-128, 03.
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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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