Time Overruns as Opportunistic Behavior in Public Procurement

Chiara D’Alpaos, Michele Moretto, Paola Valbonesi and Sergio Vergalli
Additional contact information
Chiara D’Alpaos: University of Padua, Department of Civil, Architectural and Environmental Engineering

No 2012.78, Working Papers from Fondazione Eni Enrico Mattei

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: Strategic Time Overruns; Public Procurement; Real Options (search for similar items in EconPapers)
JEL-codes: D81 H54 H57 L51 (search for similar items in EconPapers)
Date: 2012-10
New Economics Papers: this item is included in nep-ppm
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

Downloads: (external link)
https://feem-media.s3.eu-central-1.amazonaws.com/w ... oads/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)
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:fem:femwpa:2012.78

Access Statistics for this paper

More papers in Working Papers from Fondazione Eni Enrico Mattei Contact information at EDIRC.
Bibliographic data for series maintained by Alberto Prina Cerai ( this e-mail address is bad, please contact ).