Bidding for Incompete Contracts

Arbeitspapier

When procurement contracts are incomplete, they are frequently changed after the contract is awarded to the lowest bidder. This results in a final cost that differs from the initial price, and may involve significant transaction costs due to renegotiation. We propose a stylized model of bidding for incomplete contracts and apply it to data from highway repair contracts. We estimate the magnitude of transaction costs and their impact using both reduced form and fully structural models. Our results suggest that transactions costs are a significant and important determinant of observed bids, and that bidders strategically respond to contractual incompleteness. Our findings point at disadvantages of the traditional bidding process that are a consequence of transaction costs from contract adaptations.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Series: Nota di Lavoro ; No. 141.2004

Classification and Topics

• Classification: Wirtschaft ; Organizational Behavior; Transaction Costs; Property Rights ; Asymmetric and Private Information; Mechanism Design ; National Government Expenditures and Related Policies: Procurement ; Transactional Relationships; Contracts and Reputation; Networks ; Firm Organization and Market Structure ; Construction
• Subject: Procurement ; Construction ; Auktionstheorie ; Unvollständiger Vertrag ; Beschaffung ; Schätzung ; Straßenbau ; Kalifornien

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Bajari, Patrick ; Houghton, Stephanie ; Tadelis, Steven
• Event: Veröffentlichung
• (who): Fondazione Eni Enrico Mattei (FEEM)
• (where): Milano
• (when): 2004

Further information

• Handle: http://hdl.handle.net/10419/118017
• Last update: 10.03.2025, 11:41 AM CET