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The Impact of Public Information on Bidding in Highway Procurement Auctions

  • Dakshina De Silva

    (Texas Tech University)

  • Timothy Dunne

    (University of Oklahoma)

  • Anuruddha Kankanamge

    (University of Oklahoma)

  • Georgia Kosmopoulou

    (University of Oklahoma)

A number of papers in the theoretical auction literature show that the release of information regarding the seller’s valuation of an item can cause bidders to bid more aggressively. This widely accepted result in auction theory remains largely untested in the empirical literature. Recent theoretical work has also shown that this effect can be more pronounced in auctions with larger common cost uncertainty. We examine the impact of a policy change by the Oklahoma Department of Transportation that led to the release of the state’s internal estimate of the costs to complete highway construction projects. We perform a differences-in-differences analysis comparing bidding in Texas, a state that had a uniform policy of revealing the same information all throughout the period of analysis, to bidding in Oklahoma. Our results show that, in comparison to Texas auctions, the average bid in Oklahoma fell after the change in engineers’ cost estimate (ECE) policy. This decline in bids was even larger for projects where the common uncertainty in costs is greater. Moreover, the within-auction standard deviation of bids fell after the change in ECE policy with the most significant decline observed again in projects with greater common cost uncertainty.

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Paper provided by EconWPA in its series Microeconomics with number 0511011.

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Length: 43 pages
Date of creation: 29 Nov 2005
Date of revision:
Handle: RePEc:wpa:wuwpmi:0511011
Note: Type of Document - pdf; pages: 43
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