Assessing Social Costs Of Inefficient Procurement Design

Matias Eklöf
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Matias Eklöf: Uppsala University

Journal of the European Economic Association, 2005, vol. 3, issue 4, 826-850

Abstract: This paper considers the social costs implied by inefficient allocation of contracts in a first-price, sealed-bid procurement auction with asymmetric bidders. We adopt a constrained (piecewise linear) strategy equilibrium concept and estimate the structural parameters of the bidders' distribution of costs. We estimate social costs defined as the predicted cost difference between the winning firm and the most efficient bidding firm. We also compare the expected procurement costs under two different auction formats. The data is collected from procurement auctions of road painting in Sweden during 1993-1999. The results indicate that the social costs of inefficient contract allocation is about 2% of total potential production cost and that an efficient second-price auction would lower the expected procurement cost by 2.5%. (JEL: D44, H57, C15) Copyright (c) 2005 by the European Economic Association.

Date: 2005
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Persistent link: https://EconPapers.repec.org/RePEc:tpr:jeurec:v:3:y:2005:i:4:p:826-850

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