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

  • Estache, Antonio
  • Iimi, Atsushi

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.

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Paper provided by The World Bank in its series Policy Research Working Paper Series with number 4853.

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Date of creation: 01 Mar 2009
Date of revision:
Handle: RePEc:wbk:wbrwps:4853
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  1. 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 518-38, June.
  2. Estache, Antonio & Iimi, Atsushi, 2008. "Bidder asymmetry in infrastructure procurement : are there any fringe bidders ?," Policy Research Working Paper Series 4660, The World Bank.
  3. Estache, Antonio & Guasch, Jose-Luis & Iimi, Atsushi & Trujillo, Lourdes, 2008. "Multidimensionality and renegotiation : evidence from transport-sector public-private-partnership transactions in Latin America," Policy Research Working Paper Series 4665, The World Bank.
  4. Rajiv Vohra & In-Koo Cho & Kevin Jewell, 2002. "A simple model of coalitional bidding," Economic Theory, Springer, vol. 19(3), pages 435-457.
  5. Antonio Estache & A. Iimi, 2008. "Joint Bidding in Infrastructure Procurement," Working Papers ECARES 2008_019, ULB -- Universite Libre de Bruxelles.
  6. Michael Klein, 1998. "Rebidding for Concessions," World Bank Other Operational Studies 11524, The World Bank.
  7. Levin, Dan & Smith, James L, 1994. "Equilibrium in Auctions with Entry," American Economic Review, American Economic Association, vol. 84(3), pages 585-99, June.
  8. Antonio Estache & A. Iimi, 2008. "Procurement Efficiency for Infrastructure Development and Financial Needs Reassessed," Working Papers ECARES 2008_022, ULB -- Universite Libre de Bruxelles.
  9. Robert H. Porter & J. Douglas Zona, 1997. "Ohio School Milk Markets: An Analysis of Bidding," NBER Working Papers 6037, National Bureau of Economic Research, Inc.
  10. 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 316-26, March.
  11. Atsushi Iimi, 2006. "Auction Reforms for Effective Official Development Assistance," Review of Industrial Organization, Springer, vol. 28(2), pages 109-128, 03.
  12. Srabana Gupta, 2002. "Competition and collusion in a government procurement auction market," Atlantic Economic Journal, International Atlantic Economic Society, vol. 30(1), pages 13-25, March.
  13. 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.
  14. Yeon-Koo Che, 1993. "Design Competition through Multidimensional Auctions," RAND Journal of Economics, The RAND Corporation, vol. 24(4), pages 668-680, Winter.
  15. Che, Yeon-Koo & Kim, Jinwoo, 2009. "Optimal collusion-proof auctions," Journal of Economic Theory, Elsevier, vol. 144(2), pages 565-603, March.
  16. C.E. Moody Jr. & W.J. Kruvant, 1988. "Joint Bidding, Entry, and the Price of OCS Leases," RAND Journal of Economics, The RAND Corporation, vol. 19(2), pages 276-284, Summer.
  17. 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.
  18. McAfee, R. Preston & McMillan, John, 1987. "Auctions with entry," Economics Letters, Elsevier, vol. 23(4), pages 343-347.
  19. Hendricks, Kenneth & Porter, Robert H, 1992. "Joint Bidding in Federal OCS Auctions," American Economic Review, American Economic Association, vol. 82(2), pages 506-11, May.
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