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Public Procurement as Auction. Theoretical Models and Practical Problems

  • Krisztina Antal-Pomázi

    (Corvinus University of Budapest)

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    This paper aims to show how the theory of optimal auctions can be applied to modelling public procurement. The first part of the paper focuses on the problem of choosing the optimal procurement method. Our hypothesis is that it could improve social welfare if buyers had a wider set of procedures to choose from. The second part of the paper discusses the hungarian practice of bidders and purchasers manipulating the outcome of the process by withdrawing from contracts after they have been awarded. We show that there is no economic reason for making this possible without a charge, and that penalising this behaviour would also reduce the risk of corruption.

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    File URL: http://www.asz.hu/public-finance-quarterly-articles/2012/public-procurement-as-auction-theoretical-models-and-practical-problems/a-381-393-antal-pomazi-jav-vn.pdf
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    Article provided by State Audit Office of Hungary in its journal Public Finance Quarterly.

    Volume (Year): 57 (2012)
    Issue (Month): 4 ()
    Pages: 381-393

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    Handle: RePEc:pfq:journl:v:57:y:2012:i:4:p:381-393
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    1. Andrea Bonaccorsi & Thomas Lyon & Fabio Pammolli & Giuseppe Turchetti, 1999. "Auctions vs. Bargaining: An Empirical Analysis of Medical Device Procurement," LEM Papers Series 1999/20, Laboratory of Economics and Management (LEM), Sant'Anna School of Advanced Studies, Pisa, Italy.
    2. Maskin, Eric & Tirole, Jean, 2008. "Public-private partnerships and government spending limits," International Journal of Industrial Organization, Elsevier, vol. 26(2), pages 412-420, March.
    3. McAfee, R. Preston & McMillan, John., 1990. "Bidding Rings," Working Papers 726, California Institute of Technology, Division of the Humanities and Social Sciences.
    4. Klemperer, Paul, 1999. " Auction Theory: A Guide to the Literature," Journal of Economic Surveys, Wiley Blackwell, vol. 13(3), pages 227-86, July.
    5. Egil Kjerstad, 2005. "Auctions vs negotiations: a study of price differentials," Health Economics, John Wiley & Sons, Ltd., vol. 14(12), pages 1239-1251.
    6. Paul Klemperer, 2002. "What Really Matters in Auction Design," Journal of Economic Perspectives, American Economic Association, vol. 16(1), pages 169-189, Winter.
    7. Szatmári, Alexandra, 1996. "Aukciók, avagy a képbe kerül, ha a Louvre a képbe kerül?," Közgazdasági Szemle (Economic Review - monthly of the Hungarian Academy of Sciences), Közgazdasági Szemle Alapítvány (Economic Review Foundation), vol. 0(4), pages 303-314.
    8. Eső, Péter, 1997. "Árverés és verseny a közbeszerzésben
      [Auction and competition in public procurement]
      ," Közgazdasági Szemle (Economic Review - monthly of the Hungarian Academy of Sciences), Közgazdasági Szemle Alapítvány (Economic Review Foundation), vol. 0(7), pages 597-611.
    9. Bulow, Jeremy & Klemperer, Paul, 1996. "Auctions versus Negotiations," American Economic Review, American Economic Association, vol. 86(1), pages 180-94, March.
    10. Hendricks, Kenneth & Porter, Robert H, 1988. "An Empirical Study of an Auction with Asymmetric Information," American Economic Review, American Economic Association, vol. 78(5), pages 865-83, December.
    11. Laffont, Jean-Jacques & Tirole, Jean, 1987. "Auctioning Incentive Contracts," Journal of Political Economy, University of Chicago Press, vol. 95(5), pages 921-37, October.
    12. McAfee, R Preston & McMillan, John, 1987. "Auctions and Bidding," Journal of Economic Literature, American Economic Association, vol. 25(2), pages 699-738, June.
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