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Easing Renegotiation Rules in Public Procurement: Evidence from a Policy Reform

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  • Kris De Jaegher
  • Michal Soltes
  • Vitezslav Titl

Abstract

Public procurement contracts are necessarily incomplete and require frequent ex-post renegotiation. In this paper we first develop a stylized theoretical model of the effects of renegotiation policies on firms’ bidding strategies and, consequently, on the winning bids and final prices of contracts. We then use a Czech policy reform to empirically test the model’s predictions. Our findings show that (i) eased renegotiation rules lead to a decrease in the average winning bids; however, (ii) average final prices of contracts remain at the pre-reform level as the extra renegotiated price compensates for the drop in winning bids. We do not find convincing evidence of a decrease in productivity of the winning firms, but we do provide suggestive evidence of a change of contract allocation towards firms with higher bargaining power.

Suggested Citation

  • Kris De Jaegher & Michal Soltes & Vitezslav Titl, 2023. "Easing Renegotiation Rules in Public Procurement: Evidence from a Policy Reform," CERGE-EI Working Papers wp757, The Center for Economic Research and Graduate Education - Economics Institute, Prague.
    • Handle: RePEc:cer:papers:wp757
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    References listed on IDEAS

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