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American Economic Journal: Applied Economics: Vol. 6 No. 1 (January 2014)

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Awarding Price, Contract Performance, and Bids Screening: Evidence from Procurement Auctions

Article Citation

Decarolis, Francesco. 2014. "Awarding Price, Contract Performance, and Bids Screening: Evidence from Procurement Auctions." American Economic Journal: Applied Economics, 6(1): 108-32.

DOI: 10.1257/app.6.1.108

Abstract

This paper presents evidence on the perverse trade-off that first price auctions induce between low prices at the awarding stage and poor ex post performance when bids are not binding commitments. By exploiting the different timing with which first price auctions were introduced in Italy to procure public works, this study finds that at least half of the cost savings from lower winning prices are lost because of ex post renegotiation. Screening the lowest price bid for its responsiveness prevents performance worsening but also reduces the initial cost savings by a third and induces delays in awarding the contract.

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Online Appendix (211.38 KB) | Download Data Set (664.32 KB) | Author Disclosure Statement(s) (16.40 KB)

Authors

Decarolis, Francesco (Boston U)

JEL Classifications

D44: Auctions
H54: National Government Expenditures and Related Policies: Infrastructures; Other Public Investment and Capital Stock
H57: National Government Expenditures and Related Policies: Procurement
R42: Transportation Economics: Government and Private Investment Analysis; Road Maintenance, Transportation Planning

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