We study the effect on cost overruns of two dff¤erent auction formats, the first price sealed bid and the average bid, conditional on whether entry is open or restricted. The first price format awards the contract to the lowest bid, while the average bid format awards the contract to the bid closest to the average of all the bids. This latter format is supposed to prevent an unreliable low bidder from winning the auction; as a consequence cost overruns should be lower under the average bid than under the first price format. We test this hypothesis with a panel data set of auctions held in the Italian Veneto region between 2004 and 2006, including small size public projects in such sectors as road works and building maintenance. We find that cost overruns are lower under the average bid format, but only when the entry is restricted. We then speculate on possible explanations for this result.

Cost Overrun and Auction Format in Small Size Public Works

BUCCIOL, Alessandro;
2013

Abstract

We study the effect on cost overruns of two dff¤erent auction formats, the first price sealed bid and the average bid, conditional on whether entry is open or restricted. The first price format awards the contract to the lowest bid, while the average bid format awards the contract to the bid closest to the average of all the bids. This latter format is supposed to prevent an unreliable low bidder from winning the auction; as a consequence cost overruns should be lower under the average bid than under the first price format. We test this hypothesis with a panel data set of auctions held in the Italian Veneto region between 2004 and 2006, including small size public projects in such sectors as road works and building maintenance. We find that cost overruns are lower under the average bid format, but only when the entry is restricted. We then speculate on possible explanations for this result.
Cost overrun; Average bid; First price; Open entry
File in questo prodotto:
Non ci sono file associati a questo prodotto.

I documenti in IRIS sono protetti da copyright e tutti i diritti sono riservati, salvo diversa indicazione.

Utilizza questo identificativo per citare o creare un link a questo documento: http://hdl.handle.net/11562/491951
Citazioni
  • ???jsp.display-item.citation.pmc??? ND
  • Scopus 22
  • ???jsp.display-item.citation.isi??? 21
social impact