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The Impact of Public Information on Bidding in Highway Procurement Auctions

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Author Info

  • Dakshina De Silva

    (Texas Tech University)

  • Timothy Dunne

    (University of Oklahoma)

  • Anuruddha Kankanamge

    (University of Oklahoma)

  • Georgia Kosmopoulou

    (University of Oklahoma)

Abstract

A number of papers in the theoretical auction literature show that the release of information regarding the seller’s valuation of an item can cause bidders to bid more aggressively. This widely accepted result in auction theory remains largely untested in the empirical literature. Recent theoretical work has also shown that this effect can be more pronounced in auctions with larger common cost uncertainty. We examine the impact of a policy change by the Oklahoma Department of Transportation that led to the release of the state’s internal estimate of the costs to complete highway construction projects. We perform a differences-in-differences analysis comparing bidding in Texas, a state that had a uniform policy of revealing the same information all throughout the period of analysis, to bidding in Oklahoma. Our results show that, in comparison to Texas auctions, the average bid in Oklahoma fell after the change in engineers’ cost estimate (ECE) policy. This decline in bids was even larger for projects where the common uncertainty in costs is greater. Moreover, the within-auction standard deviation of bids fell after the change in ECE policy with the most significant decline observed again in projects with greater common cost uncertainty.

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Bibliographic Info

Paper provided by EconWPA in its series Microeconomics with number 0511011.

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Length: 43 pages
Date of creation: 29 Nov 2005
Date of revision:
Handle: RePEc:wpa:wuwpmi:0511011

Note: Type of Document - pdf; pages: 43
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Web page: http://128.118.178.162

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Keywords: Information Release; Procurement Auctions;

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References

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Citations

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Cited by:
  1. Estache, Antonio & Iimi, Atsushi, 2011. "(Un)bundling infrastructure procurement: Evidence from water supply and sewage projects," Utilities Policy, Elsevier, vol. 19(2), pages 104-114, June.
  2. Timothy N. Cason & Karthik N. Kannan & Ralph Siebert, 2010. "An Experimental Study of Information Revelation Policies in Sequential Auctions," Purdue University Economics Working Papers 1235, Purdue University, Department of Economics.
  3. De Silva, Dakshina G. & Kosmopoulou, Georgia & Pagel, Beatrice & Peeters, Ronald, 2010. "The impact of timing on bidding behavior in procurement auctions of contracts with private costs," MPRA Paper 27355, University Library of Munich, Germany.
  4. Chiara D’Alpaos & Michele Moretto & Paola Valbonesi & Sergio Vergalli, 2012. "Time Overruns as Opportunistic Behavior in Public Procurement," Working Papers 2012.78, Fondazione Eni Enrico Mattei.
  5. Dakshina G. De Silva & Anuruddha Kankanamge & Georgia Kosmopoulou, 2005. "The Impact Of Change In Auction Format On Bidding Behavior," Microeconomics 0512009, EconWPA.
  6. De Silva, Dakshina G. & Kosmopoulou, Georgia & Lamarche, Carlos, 2007. "The Effect of Information on the Bidding and Survival of Entrants in Procurement Auctions," MPRA Paper 5236, University Library of Munich, Germany.
  7. Dakshina G De Silva & Timothy Dunne & Georgia Kosmopoulou & Carlos Lamarche, 2011. "Disadvantaged business enterprise goals in government procurement contracting: an analysis of bidding behavior and costs," Working Paper 1102, Federal Reserve Bank of Cleveland.
  8. De Silva, Dakshina G. & Kankanamge, Anuruddha & Kosmopoulou, Georgia, 2007. "A change in the timing of auctions with synergies and its impact on bidding behavior," Economics Letters, Elsevier, vol. 95(1), pages 60-65, April.
  9. De Silva, Dakshina & Pagel, Beatrice & Peeters, Ronald, 2008. "Sequential versus Simultaneous Auctioning of Procurement Contracts with Common Value and Private Value Components," Research Memorandum 005, Maastricht University, Maastricht Research School of Economics of Technology and Organization (METEOR).
  10. Gregory Lewis & Patrick Bajari, 2011. "Moral Hazard, Incentive Contracts and Risk: Evidence from Procurement," NBER Working Papers 17647, National Bureau of Economic Research, Inc.
  11. Atsushi Iimi, 2013. "Testing Low-Balling Strategy in Rural Road Procurement," Review of Industrial Organization, Springer, vol. 43(3), pages 243-261, November.
  12. Athias, Laure & Nunez, Antonio, 2008. "The more the merrier? Number of bidders, information dispersion, renegotiation and winner’s curse in toll road concessions," MPRA Paper 10539, University Library of Munich, Germany.
  13. Hiroshi Ohashi, 2009. "Effects of Transparency in Procurement Practices on Government Expenditure: A Case Study of Municipal Public Works," Review of Industrial Organization, Springer, vol. 34(3), pages 267-285, May.
  14. Stéphane Saussier & Carine Staropoli & Anne Yvrande-Billon, 2009. "Public–Private Agreements, Institutions, and Competition: When Economic Theory Meets Facts," Review of Industrial Organization, Springer, vol. 35(1), pages 1-18, September.
  15. Dakshina De Silva & Thomas Jeitschko & Georgia Kosmopoulou, 2009. "Entry and Bidding in Common and Private Value Auctions with an Unknown Number of Rivals," Review of Industrial Organization, Springer, vol. 35(1), pages 73-93, September.
  16. 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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