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Tenders with Different Risk Preferences in Construction Industry

  • Fangcheng Tang

    ()

    (School of Economics and Management, Tsinghua University)

  • Weizhou Zhong

    ()

    (School of Economics and Finance, Xi'an Jiaotong University)

  • Shunfeng Song

    ()

    (Department of Economics, University of Nevada, Reno)

Underlying the fact that different tenderers have different preferences on risk-taking, this study investigates the different tenderers' behaviors in one-shot construction bid auctions. Our model extends the preconditions of previous assumption that all tenderers are characterized by neutral risk-taking in the original tendering model for lowest-price sealed tender. A general tendering model for the lowest-price sealed tender is established to explain the behavior of tenderers during the tendering. The results indicate that construction estimate is affected by the degree of uncertainties in the construction industry. Therefore, in a lowest-price sealed tender, risk-averse tenders would tender a higher price and conversely risk-seeking tenderers would tender a lower price when risk-neutral tenderers would tender a middle price. However, the risk-seeking tenderers are more likely to win the bid.

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File URL: http://www.business.unr.edu/econ/wp/papers/UNRECONWP06006.pdf
File Function: First version, 2006
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Paper provided by University of Nevada, Reno, Department of Economics & University of Nevada, Reno , Department of Resource Economics in its series Working Papers with number 06-006.

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Length: 20 pages
Date of creation: Dec 2006
Date of revision:
Handle: RePEc:unr:wpaper:06-006
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  17. Levin, Dan & Smith, James L, 1994. "Equilibrium in Auctions with Entry," American Economic Review, American Economic Association, vol. 84(3), pages 585-99, June.
  18. Samuelson, William F., 1985. "Competitive bidding with entry costs," Economics Letters, Elsevier, vol. 17(1-2), pages 53-57.
  19. McAfee, R Preston & McMillan, John, 1987. "Auctions and Bidding," Journal of Economic Literature, American Economic Association, vol. 25(2), pages 699-738, June.
  20. Michael H. Rothkopf & Ronald M. Harstad, 1994. "Modeling Competitive Bidding: A Critical Essay," Management Science, INFORMS, vol. 40(3), pages 364-384, March.
  21. Hausch, Donald B & Li, Lode, 1993. "A Common Value Auction Model with Endogenous Entry and Information Acquisition," Economic Theory, Springer, vol. 3(2), pages 315-34, April.
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  23. Keith Waehrer & Ronald M. Harstad & Michael H. Rothkopf, 1998. "Auction Form Preferences of Risk-Averse Bid Takers," RAND Journal of Economics, The RAND Corporation, vol. 29(1), pages 179-192, Spring.
  24. Laffont, J.J., 1996. "Game Theory and Empirical Economics: The Case of Auction Data," Papers 95.394, Toulouse - GREMAQ.
  25. Harstad, Ronald M. & Kagel, John H. & Levin, Dan, 1990. "Equilibrium bid functions for auctions with an uncertain number of bidders," Economics Letters, Elsevier, vol. 33(1), pages 35-40, May.
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