Cost Uncertainty and Time Overruns in Public Procurement: a Scoring Auction for a Contract with Delay Penalties

Cesare Dosi and Michele Moretto

No 253215, ETA: Economic Theory and Applications from Fondazione Eni Enrico Mattei (FEEM)

Abstract: Drawing on the real-options theory we analyse bidding behaviour in a sealed-bid-first-score procurement auction where suppliers, facing variable production costs, must simultaneously report the contract price and the cost level at which they intend to perform the project. We show that this award mechanism is potentially able to maximize total welfare. Next we look at the time incentives required to ensure compliance with the promised optimal trigger value. We show that ex-post efficiency may call for delay penalties higher than the anticipated harm caused by time overruns, in so doing questioning the efficiency rationale of existing liquidated damages rules.

Keywords: Research; Methods/; Statistical; Methods (search for similar items in EconPapers)
Pages: 25
Date: 2017-02-08
References: Add references at CitEc
Citations:

Downloads: (external link)
https://ageconsearch.umn.edu/record/253215/files/NDL2017-002.pdf (application/pdf)

Related works:
Working Paper: Cost Uncertainty and Time Overruns in Public Procurement: a Scoring Auction for a Contract with Delay Penalties (2017)
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:ags:feemth:253215

DOI: 10.22004/ag.econ.253215

Access Statistics for this paper

More papers in ETA: Economic Theory and Applications from Fondazione Eni Enrico Mattei (FEEM) Contact information at EDIRC.
Bibliographic data for series maintained by AgEcon Search ().