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Subcontracting and competitive bidding on incomplete procurement contracts

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  • Daniel P. Miller

Abstract

type="main"> This article examines the impact of incomplete contracts on subcontracting and the design of procurement auctions. I estimate the effect of ex post contract revisions on unit costs for both subcontracted and in-house performed work items on bridge projects procured by the California Department of Transportation. I model a scoring auction showing how ex post revisions skew bidding decisions and estimate unit costs from bid data using the method of sieve estimation. The results highlight the cost implications of incomplete contracting frictions, subcontracting decisions, and bidding distortions. In conclusion, I propose alternative auction mechanisms that could improve outcomes.

Suggested Citation

  • Daniel P. Miller, 2014. "Subcontracting and competitive bidding on incomplete procurement contracts," RAND Journal of Economics, RAND Corporation, vol. 45(4), pages 705-746, December.
  • Handle: RePEc:bla:randje:v:45:y:2014:i:4:p:705-746
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    File URL: http://hdl.handle.net/10.1111/1756-2171.12068
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    Cited by:

    1. Gil, Ricard & Marion, Justin, 2009. "The Role of Repeated Interactions, Self-Enforcing Agreements and Relational [Sub]Contracting: Evidence from California Highway Procurement Auctions," University of California Transportation Center, Working Papers qt6ds5d1pp, University of California Transportation Center.
    2. Laura Rondi & Paola Valbonesi, 2017. "Pre- and post-award outsourcing: Temporary partnership versus subcontracting in public procurement," "Marco Fanno" Working Papers 0211, Dipartimento di Scienze Economiche "Marco Fanno".
    3. Rosa, Benjamin, 2016. "Subcontracting Requirements and the Cost of Government Procurement," MPRA Paper 77392, University Library of Munich, Germany.
    4. De Silva, Dakshina G. & Dunne, Timothy & Kosmopoulou, Georgia & Lamarche, Carlos, 2015. "Project modifications and bidding in highway procurement auctions," FRB Atlanta Working Paper 2015-14, Federal Reserve Bank of Atlanta.
    5. Luigi Moretti & Paola Valbonesi, 2012. "Subcontracting in Public Procurement: An Empirical Investigation," "Marco Fanno" Working Papers 0154, Dipartimento di Scienze Economiche "Marco Fanno".
    6. repec:eee:jeborg:v:137:y:2017:i:c:p:113-131 is not listed on IDEAS

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