Optimal Cost Overruns: Procurement Auctions and Renegotiation

Arbeitspapier

Cost overrun is ubiquitous in public procurement. We argue that this can be the result of a constraint optimal award procedure when the procurer cannot commit not to renegotiate. If cost differences are more pronounced for more complex designs, it is optimal to fix a simple design ex ante and to renegotiate to a more complex and costlier design ex post. Specifying a simple design initially enhances competition in the auction. Moreover, the procurer cannot benefit from using a multi-dimensional auction, as the optimal scoring rule depends only on the price.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Series: CESifo Working Paper ; No. 5838

Classification and Topics

• Classification: Wirtschaft ; Auctions ; Asymmetric and Private Information; Mechanism Design ; National Government Expenditures and Related Policies: Procurement
• Subject: auction ; cost overrun ; procurement ; renegotiation

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Herweg, Fabian ; Schwarz, Marco A.
• Event: Veröffentlichung
• (who): Center for Economic Studies and ifo Institute (CESifo)
• (where): Munich
• (when): 2016

Further information

• Handle: http://hdl.handle.net/10419/130455
• Last update: 10.03.2025, 11:43 AM CET