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Project Performance and Bid Evaluation:Evidence from World Bank Procurement Auctions

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  • Qi Zhang

Abstract

Open competitive bidding with the contract awarded to the bidder offering the lowest bid price is commonly the recommended method for public procurement. However, the benefits of this form of bidding are subject to certain conditions, such as a good number of available bidders and no post-contract adaptations. This paper quantitatively evaluates the implications of the extent to which these conditions are satisfied for contract performance. It combines the performance ratings of World Bank financed projects with the information on bidding for World Bank procurement contracts and uses natural resources as exogenous variations to show that in resource-rich countries, where the conditions are less likely to be satisfied, awarding the contract to the bidder with the lowest bid price may not be the best procurement method in terms of contract performance. This is consistent with the evidence that World Bank financed projects performed better in non-resource-rich countries than in resource-rich countries over the last 40 years. This may explain why since 2016 the World Bank has shifted the focus of bid evaluation from the lowest bid to bids that provide the best overall value for money, taking into account risk, quality, cost and other factors as needed.

Suggested Citation

  • Qi Zhang, 2016. "Project Performance and Bid Evaluation:Evidence from World Bank Procurement Auctions," OxCarre Working Papers 184, Oxford Centre for the Analysis of Resource Rich Economies, University of Oxford.
  • Handle: RePEc:oxf:oxcrwp:184
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    References listed on IDEAS

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    1. Emmanuel Guerre & Isabelle Perrigne & Quang Vuong, 2000. "Optimal Nonparametric Estimation of First-Price Auctions," Econometrica, Econometric Society, vol. 68(3), pages 525-574, May.
    2. Steven Tadelis, 2009. "Auctions Versus Negotiations in Procurement: An Empirical Analysis," The Journal of Law, Economics, and Organization, Oxford University Press, vol. 25(2), pages 372-399, October.
    3. Patrick Bajari & Stephanie Houghton & Steven Tadelis, 2014. "Bidding for Incomplete Contracts: An Empirical Analysis of Adaptation Costs," American Economic Review, American Economic Association, vol. 104(4), pages 1288-1319, April.
    4. Denizer, Cevdet & Kaufmann, Daniel & Kraay, Aart, 2013. "Good countries or good projects? Macro and micro correlates of World Bank project performance," Journal of Development Economics, Elsevier, vol. 105(C), pages 288-302.
    5. Jacob K. Goeree & Theo Offerman, 2003. "Competitive Bidding in Auctions with Private and Common Values," Economic Journal, Royal Economic Society, vol. 113(489), pages 598-613, July.
    6. Anthony J. Venables, 2016. "Using Natural Resources for Development: Why Has It Proven So Difficult?," Journal of Economic Perspectives, American Economic Association, vol. 30(1), pages 161-184, Winter.
    7. Elodie Guerre & I. Perrigne & Q.H. Vuong, 2000. "Optimal nonparametric estimation of first-price auctions [[Estimation nonparamétrique optimale des enchères au premier prix]]," Post-Print hal-02697497, HAL.
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    More about this item

    Keywords

    procurement; auction; World Bank; project evaluation;
    All these keywords.

    JEL classification:

    • D4 - Microeconomics - - Market Structure, Pricing, and Design
    • Q3 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Nonrenewable Resources and Conservation
    • H4 - Public Economics - - Publicly Provided Goods
    • H5 - Public Economics - - National Government Expenditures and Related Policies

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