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Determinants of Adaptation Costs in Procurement: An Empirical Estimation on Italian Public Works Contracts

Author

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  • Calogero Guccio

    () (Faculty of Law - University of Catania)

  • Giacomo Pignataro

    () (Faculty of Economics - University of Catania)

  • Ilde Rizzo

    () (Faculty of Economics - University of Catania)

Abstract

It is widely agreed that rules governing public procurement should be designed to achieve value for money. However, in the public works sector, "... the good being procured is usually complex and hard to be exactly specified ex ante, ... [and] alterations to the original project might be needed after the contract is awarded. This may result in considerable discrepancies between the lowest winning bid and the actual costs that are incurred by the buyer" (Bajari et al., 2006). There is now a wide body of literature focusing on cost escalation during the execution of contracts and their estimates reveal that it can be often quite large. The paper is aimed at offering an empirical test of the determinants of adaptation costs in the public works procurement. Using a detailed data set on Italian public works contracts, we run an empirical analysis, grounded on the main conclusions reached in the literature, to test for the main drivers of adaptation costs.

Suggested Citation

  • Calogero Guccio & Giacomo Pignataro & Ilde Rizzo, 2011. "Determinants of Adaptation Costs in Procurement: An Empirical Estimation on Italian Public Works Contracts," Post-Print hal-00687731, HAL.
  • Handle: RePEc:hal:journl:hal-00687731
    DOI: 10.1080/00036846.2011.556589
    Note: View the original document on HAL open archive server: https://hal.archives-ouvertes.fr/hal-00687731
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    References listed on IDEAS

    as
    1. Juan José Ganuza, 2003. "Competition and cost overruns in procurement," Economics Working Papers 772, Department of Economics and Business, Universitat Pompeu Fabra.
    2. Bajari, Patrick & Tadelis, Steven, 2001. "Incentives versus Transaction Costs: A Theory of Procurement Contracts," RAND Journal of Economics, The RAND Corporation, vol. 32(3), pages 387-407, Autumn.
    3. Skamris, Mette K. & Flyvbjerg, Bent, 1997. "Inaccuracy of traffic forecasts and cost estimates on large transport projects," Transport Policy, Elsevier, vol. 4(3), pages 141-146, July.
    4. Mats Wilhelmsson & Rune Wigren, 2009. "The robustness of the causal and economic relationship between construction flows and economic growth: evidence from Western Europe," Applied Economics, Taylor & Francis Journals, vol. 43(7), pages 891-900.
    5. Auriol, Emmanuelle, 2006. "Corruption in procurement and public purchase," International Journal of Industrial Organization, Elsevier, vol. 24(5), pages 867-885, September.
    6. Klemperer, Paul, 1999. " Auction Theory: A Guide to the Literature," Journal of Economic Surveys, Wiley Blackwell, vol. 13(3), pages 227-286, July.
    7. Odeck, James, 2004. "Cost overruns in road construction--what are their sizes and determinants?," Transport Policy, Elsevier, vol. 11(1), pages 43-53, January.
    8. Eshien Chong & Carine Staropoli & Anne Yvrande-Billon, 2014. "Auction versus Negotiation in Public Procurement: Looking for Empirical Evidence," Université Paris1 Panthéon-Sorbonne (Post-Print and Working Papers) hal-00512813, HAL.
    9. J. Luis Guasch, 2004. "Granting and Renegotiating Infrastructure Concessions : Doing it Right," World Bank Publications, The World Bank, number 15024, November.
    10. Amemiya, Takeshi, 1984. "Tobit models: A survey," Journal of Econometrics, Elsevier, vol. 24(1-2), pages 3-61.
    11. Oriana Bandiera & Andrea Prat & Tommaso Valletti, 2009. "Active and Passive Waste in Government Spending: Evidence from a Policy Experiment," American Economic Review, American Economic Association, vol. 99(4), pages 1278-1308, September.
    12. Miriam A. Golden & Lucio Picci, 2005. "Proposal For A New Measure Of Corruption, Illustrated With Italian Data," Economics and Politics, Wiley Blackwell, vol. 17, pages 37-75, March.
    13. Kahneman, Daniel & Tversky, Amos, 1979. "Prospect Theory: An Analysis of Decision under Risk," Econometrica, Econometric Society, vol. 47(2), pages 263-291, March.
    14. Klemperer, Paul, 1999. " Auction Theory: A Guide to the Literature," Journal of Economic Surveys, Wiley Blackwell, vol. 13(3), pages 227-86, July.
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    Citations

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    Cited by:

    1. Decarolis, Francesco & Palumbo, Giuliana, 2015. "Renegotiation of public contracts: An empirical analysis," Economics Letters, Elsevier, vol. 132(C), pages 77-81.
    2. Calogero Guccio & Giacomo Pignataro & Ilde Rizzo, 2014. "Evaluating the efficiency of public procurement contracts for cultural heritage conservation works in Italy," Journal of Cultural Economics, Springer;The Association for Cultural Economics International, vol. 38(1), pages 43-70, February.
    3. Nadia Fiorino & Emma Galli & Ilde Rizzo & Marco Valente, 2018. "Public Procurement and Reputation: An Agent-Based Model," LEM Papers Series 2018/18, Laboratory of Economics and Management (LEM), Sant'Anna School of Advanced Studies, Pisa, Italy.
    4. repec:spr:epolin:v:45:y:2018:i:1:d:10.1007_s40812-017-0086-5 is not listed on IDEAS
    5. Massimo Finocchiaro Castro & Calogero Guccio & Ilde Rizzo, 2014. "An assessment of the waste effects of corruption on infrastructure provision," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 21(4), pages 813-843, August.
    6. repec:eee:hepoli:v:121:y:2017:i:5:p:515-524 is not listed on IDEAS
    7. Calogero Guccio & Ilde Rizzo, 2013. "Public spending for conservation in Italy," Chapters,in: Handbook on the Economics of Cultural Heritage, chapter 27, pages i-i Edward Elgar Publishing.
    8. Guccio, Calogero & Pignataro, Giacomo & Rizzo, Ilde, 2014. "Do local governments do it better? Analysis of time performance in the execution of public works," European Journal of Political Economy, Elsevier, vol. 34(C), pages 237-252.
    9. Olga Chiappinelli, 2017. "Decentralization and Public Procurement Performance: New Evidence from Italy," Discussion Papers of DIW Berlin 1704, DIW Berlin, German Institute for Economic Research.
    10. 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".
    11. Baldi, Simona & Bottasso, Anna & Conti, Maurizio & Piccardo, Chiara, 2016. "To bid or not to bid: That is the question: Public procurement, project complexity and corruption," European Journal of Political Economy, Elsevier, vol. 43(C), pages 89-106.

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