Abstract

http://ssrn.com/abstract=624442
 
 

Citations (13)



 


 



Bidding for Incomplete Contracts


Patrick Bajari


University of Michigan at Ann Arbor - Economics; National Bureau of Economic Research (NBER)

Stephanie Houghton


Duke University - Department of Economics

Steven Tadelis


University of California, Berkeley - Haas School of Business

December 2004

FEEM Working Paper No. 141.04

Abstract:     
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.

Number of Pages in PDF File: 48

Keywords: Procurement, Construction

JEL Classification: D23, D82, H57, L14, L22, L74

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Date posted: November 26, 2004  

Suggested Citation

Bajari, Patrick and Houghton , Stephanie and Tadelis, Steven, Bidding for Incomplete Contracts (December 2004). FEEM Working Paper No. 141.04. Available at SSRN: http://ssrn.com/abstract=624442 or http://dx.doi.org/10.2139/ssrn.624442

Contact Information

Patrick Bajari (Contact Author)
University of Michigan at Ann Arbor - Economics ( email )
266 Lorch Hall
Ann Arbor, MI 48109
United States
734-763-5319 (Phone)
HOME PAGE: http://www-personal.umich.edu/~bajari/
National Bureau of Economic Research (NBER)
1050 Massachusetts Avenue
Cambridge, MA 02138
United States
Stephanie Houghton
Duke University - Department of Economics ( email )
Durham, NC 27708-0204
United States
Steven Tadelis
University of California, Berkeley - Haas School of Business ( email )
545 Student Services Building
Berkeley, CA 94720
United States
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