Assessing Social Costs of Inefficient Procurement Design
This paper considers the social costs implied by inefficient allocation of contracts in a first price, sealed bid procurement auction with asymmetric bidders. We adopt a constrained (piecewise linear) strategy equilibrium concept and estimate the structural parameters of the bidders’ distribution of costs. We estimate social costs defined as the predicted cost difference between the winning firm and the most efficient bidding firm. We also compare the expected procurement costs under two different auction formats. The data is collected from procurement auctions of road painting in Sweden during 1993-99. The results indicate that the social costs of inefficient contract allocation is about 1.7 per cent of total potential social cost and that an efficient second price auction would lower the expected procurement cost by 2.8 per cent.
|Date of creation:||26 Feb 2003|
|Date of revision:|
|Publication status:||Forthcoming in Journal of the European Economic Association.|
|Contact details of provider:|| Postal: Department of Economics, Uppsala University, P. O. Box 513, SE-751 20 Uppsala, Sweden|
Phone: + 46 18 471 25 00
Fax: + 46 18 471 14 78
Web page: http://www.nek.uu.se/
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References listed on IDEAS
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- Eric Maskin & John Riley, 2000. "Asymmetric Auctions," Review of Economic Studies, Oxford University Press, vol. 67(3), pages 413-438.
- Olivier Armantier & Jean-Pierre Florens & Jean-Francois Richard, 1999. "Nash Equilibrium Approximations in Games of Incomplete Information," Department of Economics Working Papers 99-01, Stony Brook University, Department of Economics.
- Eric Maskin & John Riley, 2000. "Equilibrium in Sealed High Bid Auctions," Review of Economic Studies, Oxford University Press, vol. 67(3), pages 439-454.
- Martin Pesendorfer, 2000. "A Study of Collusion in First-Price Auctions," Review of Economic Studies, Oxford University Press, vol. 67(3), pages 381-411.
- Armantier, O. & Florens, J.-P. & Richard, J.-F., 1998. "Empirical Game Theoretic Models: Constrained Equilibrium & Simulation," Papers 98.498, Toulouse - GREMAQ.
- Paul Milgrom & Robert J. Weber, 1981.
"A Theory of Auctions and Competitive Bidding,"
447R, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
- Armantier, Olivier & Richard, Jean-Francois, 2000. "Empirical Game Theoretic Models: Computational Issues," Computational Economics, Springer;Society for Computational Economics, vol. 15(1-2), pages 3-24, April.
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