(UN)Bundling infrastructure procurement: evidence from water supply and sewage projects

Antonio Estache and Atsushi Iimi

No 4854, Policy Research Working Paper Series from The World Bank

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. Using data on public procurement auctions for water and sewage projects in developing countries, this paper shows that bidder entry is crucially endogenous, especially because it is 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 the 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: Investment and Investment Climate; Government Procurement; E-Business; Debt Markets; Markets and Market Access (search for similar items in EconPapers)
Date: 2009-03-01
New Economics Papers: this item is included in nep-dev
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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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Persistent link: https://EconPapers.repec.org/RePEc:wbk:wbrwps:4854

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