Affiliation:
1. Boston University, Department of Economics, 270 Bay State Road, Boston MA 02215 (e-mail: )
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. (JEL D44, H54, H57, R42)
Publisher
American Economic Association
Subject
General Economics, Econometrics and Finance
Cited by
95 articles.
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