Sequential Procurement Auctions and Their Effect on Investment Decisions

Nicolás Figueroa and Gonzalo Cisternas

No 230, Documentos de Trabajo from Centro de Economía Aplicada, Universidad de Chile

Abstract: In this paper we characterize the optimal procurement mechanism and the investment level for an environment where two projects must be adjudicated sequentially, and the winner of the first project has the opportunity to invest in a distributional upgrade for its costs in the second project. We study 4 cases, based on the commitment level of the seller and the observability of the investment decision. We find that with commitment, the second period mechanism gives an advantage to the first period winner, and induces an investment level that is greater than the efficient one. With non-commitment, the second period mechanism gives a disadvantage to the first period winner, and induces an investment level that is smaller than the efficient one. Observability is irrelevant in the commitment case, but makes the effects more pronounced in the non-commitment case.

Date: 2007
New Economics Papers: this item is included in nep-ppm
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Citations: View citations in EconPapers (5)

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Journal Article: Sequential procurement auctions and their effect on investment decisions (2015)
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Persistent link: https://EconPapers.repec.org/RePEc:edj:ceauch:230

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