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Tenders with Different Risk Preferences in Construction Industry

Author

Listed:
  • 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)

Abstract

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.

Suggested Citation

  • Fangcheng Tang & Weizhou Zhong & Shunfeng Song, 2006. "Tenders with Different Risk Preferences in Construction Industry," Working Papers 06-006, University of Nevada, Reno, Department of Economics;University of Nevada, Reno , Department of Resource Economics.
  • Handle: RePEc:unr:wpaper:06-006
    as

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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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    References listed on IDEAS

    as
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    More about this item

    Keywords

    Auction; tender; uncertainty; preference; construction industry;

    JEL classification:

    • D44 - Microeconomics - - Market Structure, Pricing, and Design - - - Auctions
    • L74 - Industrial Organization - - Industry Studies: Primary Products and Construction - - - Construction

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