Time Overruns as Opportunistic Behavior in Public Procurement

Chiara D'Alpaos, Michele Moretto, Paola Valbonesi and Sergio Vergalli

No 139507, Economy and Society from Fondazione Eni Enrico Mattei (FEEM)

Abstract: This paper considers the supplier’s strategic delivery lead time in a public procurement setting as the result of the firm’s opportunistic behaviour on the optimal investment timing. In the presence of uncertainty on construction costs, we model the supplier’s option to defer the contract’s execution as a Put Option. We include in the model both the discretion of the court of law in enforcing contractual clauses (i.e. a penalty for delays) and the "quality" of the judicial system. Then, we calibrate the model using parameters that mimic the Italian procurement for public works and calculate the maximum amount that a firm is "willing to pay" (per day) to postpone the delivery date and infringe the contract provisions. Our results show that the incentive to delay is greater the higher the construction costs and their volatility, and the weaker the penalty enforcement by the courts of law.

Keywords: Public; Economics (search for similar items in EconPapers)
Pages: 78
Date: 2012-10
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https://ageconsearch.umn.edu/record/139507/files/NDL2012-078.pdf (application/pdf)

Related works:
Journal Article: Time overruns as opportunistic behavior in public procurement (2013)
Working Paper: Time Overruns as Opportunistic Behavior in Public Procurement (2012)
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Persistent link: https://EconPapers.repec.org/RePEc:ags:feemso:139507

DOI: 10.22004/ag.econ.139507

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