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Auctions with endogenous participation and quality thresholds : evidence from ODA infrastructure procurement

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Listed:
  • Estache, Antonio
  • Iimi, Atsushi

Abstract

Infrastructure projects are often technically complicated and highly customized. Therefore, procurement competition tends to be limited. Competition is the single most important factor toward auction efficiency and anti-corruption. However, the degree of competition realized is closely related to bidders'entry decision and the auctioneer's decision on how to assess technical attributes in the bid evaluation process. This paper estimates the interactive effects among quality, entry, and competition. With data on procurement auctions for electricity projects in developing countries, it is found that large electricity works are by nature costly and can attract only a few participants. The limited competition would raise government procurement costs. In addition, high technical requirements are likely to be imposed for these large-scale projects, which will in turn add extra costs for the better quality of works and further limit bidder participation. The evidence suggests that quality is of particular importance in large infrastructure projects and auctioneers cannot easily substitute price for quality.

Suggested Citation

  • Estache, Antonio & Iimi, Atsushi, 2009. "Auctions with endogenous participation and quality thresholds : evidence from ODA infrastructure procurement," Policy Research Working Paper Series 4853, The World Bank.
  • Handle: RePEc:wbk:wbrwps:4853
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    References listed on IDEAS

    as
    1. Estache, Antonio & Iimi, Atsushi, 2008. "Procurement efficiency for infrastructure development and financial needs reassessed," Policy Research Working Paper Series 4662, The World Bank.
    2. Che, Yeon-Koo & Kim, Jinwoo, 2009. "Optimal collusion-proof auctions," Journal of Economic Theory, Elsevier, vol. 144(2), pages 565-603, March.
    3. Yeon-Koo Che, 1993. "Design Competition through Multidimensional Auctions," RAND Journal of Economics, The RAND Corporation, vol. 24(4), pages 668-680, Winter.
    4. Porter, Robert H & Zona, J Douglas, 1993. "Detection of Bid Rigging in Procurement Auctions," Journal of Political Economy, University of Chicago Press, vol. 101(3), pages 518-538, June.
    5. Cripps, Martin & Ireland, Norman, 1994. "The Design of Auctions and Tenders with Quality Thresholds: The Symmetric Case," Economic Journal, Royal Economic Society, vol. 104(423), pages 316-326, March.
    6. McAfee, R. Preston & McMillan, John, 1987. "Auctions with entry," Economics Letters, Elsevier, vol. 23(4), pages 343-347.
    7. Michael K. Price, 2008. "Using The Spatial Distribution Of Bidders To Detect Collusion In The Marketplace: Evidence From Timber Auctions," Journal of Regional Science, Wiley Blackwell, vol. 48(2), pages 399-417.
    8. Antonio Estache & Atsushi Iimi, 2010. "Bidder Asymmetry in Infrastructure Procurement: Are There any Fringe Bidders?," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 36(2), pages 163-187, March.
    9. Atsushi Iimi, 2006. "Auction Reforms for Effective Official Development Assistance," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 28(2), pages 109-128, March.
    10. Michael Klein, 1998. "Rebidding for Concessions," World Bank Other Operational Studies 11524, The World Bank.
    11. Antonio Estache & Jose-Luis Guasch & Atsushi Iimi & Lourdes Trujillo, 2009. "Multidimensionality and Renegotiation: Evidence from Transport-Sector Public-Private-Partnership Transactions in Latin America," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 35(1), pages 41-71, September.
    12. Hendricks, Kenneth & Porter, Robert H, 1992. "Joint Bidding in Federal OCS Auctions," American Economic Review, American Economic Association, vol. 82(2), pages 506-511, May.
    13. Rajiv Vohra & In-Koo Cho & Kevin Jewell, 2002. "A simple model of coalitional bidding," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 19(3), pages 435-457.
    14. 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.
    15. Estache, Antonio & Iimi, Atsushi, 2008. "Joint bidding in infrastructure procurement," Policy Research Working Paper Series 4664, The World Bank.
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    Cited by:

    1. Arno Van Der Vlist & Sander Hardeman, 2011. "On the Design of Public Infrastructure procurements," ERSA conference papers ersa10p1060, European Regional Science Association.
    2. repec:eee:juipol:v:48:y:2017:i:c:p:184-194 is not listed on IDEAS

    More about this item

    Keywords

    Government Procurement; Investment and Investment Climate; E-Business; Markets and Market Access; Economic Theory&Research;

    JEL classification:

    • D44 - Microeconomics - - Market Structure, Pricing, and Design - - - Auctions
    • H54 - Public Economics - - National Government Expenditures and Related Policies - - - Infrastructures
    • H57 - Public Economics - - National Government Expenditures and Related Policies - - - Procurement
    • C21 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Cross-Sectional Models; Spatial Models; Treatment Effect Models

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