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The Impact of Scoring Weights on Price and Quality Outcomes: An Application to the Procurement of Welfare-to-Work Contracts

Listed author(s):
  • Koning, Pierre

    ()

    (Leiden University)

  • van de Meerendonk, Arthur

    ()

    (Maastricht University)

This paper assesses the effects of changes in scoring weights in auctions, using a unique sample of biddings of private Welfare-to-Work (WTW) organizations to reintegrate groups of unemployed and disabled workers. WTW-organizations did not only bid on prices, but also received points for three proxies of the quality of their services: their reputation, a description of their intended methodology to reintegrate workers and the fraction of job placements they considered likely to achieve. We exploit the fact that the scoring weights of these items changed in the time period under consideration, while the broad classification of ('gross') worker types remained similar over time. Our estimation results show that increases in the scoring weights of the quality items result in higher price bids, particularly of WTW-firms that are bidding for the first time as entrants. For the WTW-firms that won the procurements, we find a higher weight for both the reputation and the methodology item to contribute to the job placement of workers.

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Paper provided by Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 7116.

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Length: 42 pages
Date of creation: Dec 2012
Publication status: published in: European Economic Review, 2014, 71, 1–14
Handle: RePEc:iza:izadps:dp7116
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  1. Jean-Jacques Laffont & Jean Tirole, 1993. "A Theory of Incentives in Procurement and Regulation," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262121743, December.
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  3. John Asker & Estelle Cantillon, 2008. "Properties of scoring auctions," RAND Journal of Economics, RAND Corporation, vol. 39(1), pages 69-85.
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  5. Yeon-Koo Che, 1993. "Design Competition through Multidimensional Auctions," RAND Journal of Economics, The RAND Corporation, vol. 24(4), pages 668-680, Winter.
  6. Bergman, Mats & Lundberg, Sofia, 2011. "Tender Evaluation and Award Methodologies in Public Procurement," Umeå Economic Studies 821, Umeå University, Department of Economics.
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  8. Lisa J. Cameron, 2000. "Limiting Buyer Discretion: Effects on Performance and Price in Long-Term Contracts," American Economic Review, American Economic Association, vol. 90(1), pages 265-281, March.
  9. Luc Behaghel & Bruno Crépon & Marc Gurgand, 2014. "Private and Public Provision of Counseling to Job-Seekers: Evidence from a Large Controlled Experiment," PSE - Labex "OSE-Ouvrir la Science Economique" halshs-01067926, HAL.
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  12. Francesco Decarolis, 2014. "Awarding Price, Contract Performance, and Bids Screening: Evidence from Procurement Auctions," American Economic Journal: Applied Economics, American Economic Association, vol. 6(1), pages 108-132, January.
  13. Koning, Pierre & Heinrich, Carolyn J., 2010. "Cream-Skimming, Parking and Other Intended and Unintended Effects of Performance-Based Contracting in Social Welfare Services," IZA Discussion Papers 4801, Institute for the Study of Labor (IZA).
  14. Bruttel, Oliver, 2005. "Contracting-out and governance mechanisms in the public employment service," Discussion Papers, Research Unit: Labor Market Policy and Employment SP I 2005-109, Social Science Research Center Berlin (WZB).
  15. Klemperer, P., 1999. "Auction Theory: a Guide to the Literature," Economics Papers 1999-w12, Economics Group, Nuffield College, University of Oxford.
  16. Giancarlo Spagnolo, 2012. "Reputation, Competition, and Entry in Procurement," EIEF Working Papers Series 1201, Einaudi Institute for Economics and Finance (EIEF), revised Jan 2012.
  17. R. Preston McAfee & John McMillan, 1987. "Competition for Agency Contracts," RAND Journal of Economics, The RAND Corporation, vol. 18(2), pages 296-307, Summer.
  18. Patrick Bajari & Robert McMillan & Steven Tadelis, "undated". "Auctions versus Negotiations in Procurement: An Empirical Analysis," Working Papers 02007, Stanford University, Department of Economics.
  19. Onderstal, Sander, 2009. "Bidding for the unemployed: An application of mechanism design to welfare-to-work programs," European Economic Review, Elsevier, vol. 53(6), pages 715-722, August.
  20. Oecd, 2011. "Centralised Purchasing Systems in the European Union," SIGMA Papers 47, OECD Publishing.
  21. Frank A. Wolak, 2003. "Measuring Unilateral Market Power in Wholesale Electricity Markets: The California Market, 1998–2000," American Economic Review, American Economic Association, vol. 93(2), pages 425-430, May.
  22. Pierre Koning & Carolyn J. Heinrich, 2013. "Cream‐Skimming, Parking and Other Intended and Unintended Effects of High‐Powered, Performance‐Based Contracts," Journal of Policy Analysis and Management, John Wiley & Sons, Ltd., vol. 32(3), pages 461-483, 06.
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