OPTIMAL COST OVERRUNS: PROCUREMENT AUCTIONS WITH RENEGOTIATION

B-Tier
Journal: International Economic Review
Year: 2018
Volume: 59
Issue: 4
Pages: 1995-2021

Score contribution per author:

1.005 = (α=2.01 / 2 authors) × 1.0x B-tier

α: calibrated so average coauthorship-adjusted count equals average raw count

Abstract

Cost overrun is ubiquitous in public procurement. We argue that this can be the result of a constrained optimal award procedure: The procurer awards the contract via a price‐only auction and cannot commit not to renegotiate. If cost differences are more pronounced for a fancy than a standard design, it is optimal to fix the standard design ex ante. If renegotiation takes place and the fancy design has higher production costs or the contractor's bargaining position is strong, the final price exceeds the initial price. Moreover, the procurer cannot benefit from using a scoring auction.

Technical Details

RePEc Handle
repec:wly:iecrev:v:59:y:2018:i:4:p:1995-2021
Journal Field
General
Author Count
2
Added to Database
2026-01-29