Procurement Contracting with Time Incentives: Theory and Evidence

Patrick Bajari and Gregory Lewis

No 14855, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: In public sector procurement, social welfare often depends on the time taken to complete the contract. A leading example is highway construction, where slow completion times inflict a negative externality on commuters. Recently, highway departments have introduced innovative contracting methods based on scoring auctions that give contractors explicit time incentives. We characterize equilibrium bidding and efficient design of these contracts. We then gather an extensive data set of highway repair projects awarded by the California Department of Transportation between 2003 and 2008 that includes both innovative and standard contracts. Comparing similar con- tracts in which the innovative design was and was not used, we show that the welfare gains to commuters from quicker completion substantially exceeded the increase in the winning bid. Having argued that the current policy is effective, we then develop a structural econometric model that endogenizes participation and bidding to examine counterfactual policies. Our estimates suggest that while the current policy raised com- muter surplus relative to the contractor's costs by $359M (6.8% of the total contract value), the optimal policy would raise it by $1.52B (29%).

JEL-codes: D02 D21 D44 H57 L0 L74 L78 (search for similar items in EconPapers)
Date: 2009-04
New Economics Papers: this item is included in nep-cta and nep-ppm
Note: IO
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (15)

Published as Gregory Lewis & Patrick Bajari, 2011. "Procurement Contracting With Time Incentives: Theory and Evidence," The Quarterly Journal of Economics, Oxford University Press, vol. 126(3), pages 1173-1211.

Downloads: (external link)
http://www.nber.org/papers/w14855.pdf (application/pdf)

Related works:
Journal Article: Procurement Contracting With Time Incentives: Theory and Evidence (2011)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:nbr:nberwo:14855

Ordering information: This working paper can be ordered from
http://www.nber.org/papers/w14855

Access Statistics for this paper

More papers in NBER Working Papers from National Bureau of Economic Research, Inc National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A.. Contact information at EDIRC.
Bibliographic data for series maintained by ().