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Resident Bid Preference, Affiliation, and Procurement Competition: Evidence from New Mexico

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  • Rosa, Benjamin

Abstract

In public procurement auctions, governments typically offer preferences to qualified businesses in the form of bid discounts. Previous studies that examine how these bid preferences affect auction outcomes fail to address affiliation -- a particular type of correlation among costs that can be generated in a public procurement setting. This paper addresses that issue by studying the joint effect of bid preferences and affiliation in project-completion costs on procurement auctions using novel data from the New Mexico Department of Transportation's Resident Preference Program. Bidders, heterogeneous in residency status, compete in an auction with endogenous entry and affiliated project-completion costs for the opportunity to complete a construction project. Here affiliation is modeled using copulas, and an empirical model is developed to disentangle a bidder's participation and bidding decisions. I find that accounting for affiliation in project-completion costs considerably changes the evaluation of how offering preferences to resident bidders affects the cost of procurement and the number of resident bidders who ultimately win these preference auctions. The estimates indicate that the New Mexico Department of Transportation can increase the current level of preference to increase the number of winning resident bidders without a major change in the cost of procurement.

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  • Rosa, Benjamin, 2016. "Resident Bid Preference, Affiliation, and Procurement Competition: Evidence from New Mexico," MPRA Paper 68759, University Library of Munich, Germany.
  • Handle: RePEc:pra:mprapa:68759
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    References listed on IDEAS

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    Cited by:

    1. Rosa, Benjamin, 2016. "Subcontracting Requirements and the Cost of Government Procurement," MPRA Paper 77392, University Library of Munich, Germany.

    More about this item

    Keywords

    Affiliation; procurement auctions; bid preferences;

    JEL classification:

    • D44 - Microeconomics - - Market Structure, Pricing, and Design - - - Auctions
    • H11 - Public Economics - - Structure and Scope of Government - - - Structure and Scope of Government
    • H57 - Public Economics - - National Government Expenditures and Related Policies - - - Procurement
    • H76 - Public Economics - - State and Local Government; Intergovernmental Relations - - - Other Expenditure Categories
    • R42 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Transportation Economics - - - Government and Private Investment Analysis; Road Maintenance; Transportation Planning

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