(Un)Bundling Infrastructure Procurement: Evidence from Water Supply and Sewage Projects

Antonio Estache and Atsushi Iimi

No 2009_007, Working Papers ECARES from ULB -- Universite Libre de Bruxelles

Abstract: Competition in public procurement auctions in the water supply and sanitation sector is largely limited. This is partly because of high technical complexity and partly because of auction design flaws. The division of lot contracts is an important policy choice for auctioneers to achieve efficiency. In general, there is a tradeoff between competition in auctions and size of contracts. Larger works could benefit from economies of scale and scope, but, large contracts might undermine competition. With the data on public procurement auctions for water and sewage projects in developing countries, it is shown that the bidder entry is crucially endogenous, especially determined by the auctioneer’s bundling and unbundling strategy. If water treatment plant and distribution network works are bundled in a single lot package, competition would be significantly reduced, and this adverse entry effect would in turn raise public procurement costs of infrastructure. There is no evidence of positive scope economies in the bidder cost structure. It is important to account for the underlying cost structure for designing efficient auction mechanisms.

Keywords: Public procurement; auction theory; infrastructure development; governance (search for similar items in EconPapers)
JEL-codes: C21 D44 H54 H57 (search for similar items in EconPapers)
Pages: 19 p.
Date: 2009
New Economics Papers: this item is included in nep-ppm
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Citations: View citations in EconPapers (2)

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Related works:
Journal Article: (Un)bundling infrastructure procurement: Evidence from water supply and sewage projects (2011)
Working Paper: (Un)bundling infrastructure procurement: Evidence from water supply and sewage projects (2011)
Working Paper: (UN)Bundling infrastructure procurement: evidence from water supply and sewage projects (2009)
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