Design of Public Procurement Auctions: Evidence from Cleaning Contracts (original) (raw)

Politics and Procurement: Evidence from Cleaning Contracts

Social Science Research Network, 2007

We study the effects of politics on public procurement in Swedish municipalities in 1990-98 when they had high degrees of freedom in designing procurements, using data on cleaning services. We aim to explain why the lowest bidder does not win 58% of the time and conditional on the lowest bid not winning the municipalities pay 43% more than the lowest bid. We find that leftwing municipalities are more price-sensitive; in rightwing municipalities, the effect of price depends on the number of bidders; the municipalities take into account the multi-object aspect of the procurements; and that in leftwing municipalities, the bids are endogenous and related to favoritism.

Comparing public procurement auctions

International Economic Review, 59(2), 391-419, 2018

This article contrasts two auction formats often used in public procurement: first price auctions with ex post screening of bid responsiveness and average bid auctions (ABAs), in which the bidder closest to the average bid wins. The equilibrium analysis reveals that their ranking is ambiguous in terms of revenues, but the ABA is typically less efficient. Using a data set of Italian public procurement auctions run alternately under the two formats, a structural model of bidding is estimated for the subsample of first price auctions and used to quantify the efficiency loss under counterfactual ABAs.

Favoritism in Public Procurement: Evidence from Sweden

2005

We study favoritism in public procurement of cleaning service contracts in Sweden 1990-1998. Cleaning services are a low-tech, clearly defined product with easy entry and no ex-ante quality differences. We study a period where the law allowed municipalities high degrees of freedom in choosing the winner. In our data, the lowest bid does not win 61% of the time, and municipalities pay on average 38% more than the lowest bid. Municipal behavior systematically correlates with the composition of the municipal council: councils with the largest majorities (whether right-or left-wing) put no weight on price in determining the winner. Our data and results demonstrate that favoritism may quickly occur even in a highly non-corrupt society once the rules allow for it, and whether or not it occurs is systematically linked to some political fraction having high control over decision-making.

Restrictions on Competition in Municipal Competitive Procurement in Sweden

International Advances in Economic Research, 2005

The bidding process in public procurement in Sweden is a first-price sealed bid auction. Although there is a competitive effect on the bids in this type of auction, the contracting entity can through the choice of procurement procedure, restrict the number of bidders. This paper studies this choice and imposes an implementation cost on the contracting entity to motivate such a restriction. The results, based on data for Swedish municipalities, suggest that contract specifications and municipality characteristics (that are assumed to influence the implementation cost); affect the volume of the procurement and the number of bidders, but not necessarily the choice of procurement procedure.

Auction Formats and Award Rules in Swedish Procurement Auctions

2007

This paper provides an empirical analysis of outcomes from Swedish procurement auctions given award criterion and auction format. The auctions are single unit first-price sealed bid auctions or its simultaneous counterpart, and contracts can be awarded to lowest bidder or in accordance with qualitative criteria. The empirical results provide no evidence of differences in winning bids depending on the auction format. The award rule on the other hand matters, a horizontal comparison show higher winning bids on contracts awarded to some other but the lowest bidder. The effect of bidder interaction and bidder identity is also considered. JEL: D44, H57 * Financial support from the Swedish Competition Authority is gratefully acknowledged as insightful comments from Linda Andersson, Johan Lundberg, and Lars Westin.

Do Auctions Improve Public Procurement? Evidence from the Czech Republic

DANUBE: Law and Economics Review, 2015

This paper explores the effect of various contract-awarding procedures in public procurement on the price of the contract. We provide a theoretical model that compares prices in different procedures and tests whether there is a significant price difference between the procedures using data from Czech public procurement. The model predicts that auctions are more efficient than negotiations given the same number of suppliers, and open procedures are more efficient than closed procedures if high-cost firms are selected for the closed procedure. In accordance with the first prediction, we find that open auctions are more efficient than open negotiations. Concerning the second prediction, we find that closed procedures are less efficient than open procedures, which suggests that procurers tend to select relatively more costly firms to participate in closed procedures. Comparing all four awarding procedures, we find that open auctions are the most efficient procedure used in the Czech Rep...

On the Value of Competition in Procurement Auctions

Econometrica, 2002

It is commonly stated that ascending price or second price auctions allocate goods e±ciently, to those who value them most. This implies that the more bidders at the auction stage the more e±cient the¯nal allocation. We review this statement when bidders have private information both on a private element and a common element. While the¯nal allocation need not be ex post e±cient, we show that when bidders are ex ante symmetric, more competition at the auction yields higher e±ciency on expectation. When bidders are ex ante asymmetric-in particular with respect to the information on the common element-the statement need no longer be true.

Corruption and Competition in Public Market Auctions

2000

This paper investigates the effect of corruption on competition in government procurement auctions. Our assumption is that the bureaucrat (i.e. the agent that administers the market), if corrupt, may provide a favour in exchange for a bribe. The favour we consider in most of our analysis is the opportunity to readjust a bid. We show that a key effect of corruption is to facilitate collusion in price between firms. This can result in high public spending and inefficient allocation. We discuss the effect of other forms of bureaucratic discretion in the procurement process and analyse conditions under which unilateral anti-corruption controls may restore price competition.

Bidder Behaviour in Swedish Simultaneous Procurement Auctions

2000

Given no capacity constraints and the same set of competitors one would expect the same identity of the bidder having the lowest cost to complete all contracts simultaneously auctioned. Results based on bid level data from Swedish procurement auctions of internal cleaning service contracts suggests otherwise. The same bidder is found on simultaneous auctioned contracts although this bidder has not

Avoritism in Public Procurement : Evidence from S Weden

2005

We study favoritism in public procurement of cleaning service contracts in Sweden 1990-1998. Cleaning services are a low-tech, clearly defined product with easy entry and no ex-ante quality differences. We study a period where the law allowed municipalities high degrees of freedom in choosing the winner. In our data, the lowest bid does not win 61% of the time, and municipalities pay on average 38% more than the lowest bid. Municipal behavior systematically correlates with the composition of the municipal council: councils with the largest majorities (whether rightor left-wing) put no weight on price in determining the winner. Our data and results demonstrate that favoritism may quickly occur even in a highly non-corrupt society once the rules allow for it, and whether or not it occurs is systematically linked to some political fraction having high control over decision-making.