Cost Overrun and Auction Format in Public Works
We provide an empirical investigation of cost overruns in small public procurement projects, using a panel dataset of auctions held in the Italian Veneto region between 2004 and 2006. We use this sample to study the effect on cost overruns of auction formats (average bid as opposed to first price rule) conditional on the entry mechanisms (free as opposed to limited access). It is commonly believed that cost overruns are lower under average bid auctions relative to first price auctions. We find support to this belief only when access to the auction is limited. We interpret this finding as evidence that winner's adverse selection is an important problem in auctions for small size public works, and the lack of a significant effect of the average bid format in free entry auctions may reflect collusion.
|Date of creation:||Mar 2011|
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- Francesco Decarolis, 2009.
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Temi di discussione (Economic working papers)
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02007, Stanford University, Department of Economics.
- Steven Tadelis, 2009. "Auctions Versus Negotiations in Procurement: An Empirical Analysis," Journal of Law, Economics and Organization, Oxford University Press, vol. 25(2), pages 372-399, October.
- Patrick Bajari & Robert S. McMillan & Steve Tadelis, 2003. "Auctions Versus Negotiations in Procurement: An Empirical Analysis," NBER Working Papers 9757, National Bureau of Economic Research, Inc.
- Waehrer Keith, 1995. "A Model of Auction Contracts with Liquidated Damages," Journal of Economic Theory, Elsevier, vol. 67(2), pages 531-555, December.
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