(Un)Bundling Infrastructure Procurement: Evidence from Water Supply and Sewage Projects

20 Pages Posted: 20 Apr 2016

See all articles by Antonio Estache

Antonio Estache

Université Libre de Bruxelles (ULB) - European Center for Advanced Research in Economics and Statistics (ECARES)

Atsushi Iimi

International Monetary Fund (IMF); World Bank

Date Written: March 1, 2009

Abstract

Competition in public procurement auctions in the water supply and sanitation sector is largely limited. This is partly because of high technical complexity and partly because of auction design flaws. The division of lot contracts is an important policy choice for auctioneers to achieve efficiency. In general, there is a tradeoff between competition in auctions and size of contracts. Larger works could benefit from economies of scale and scope, but large contracts might undermine competition. Using data on public procurement auctions for water and sewage projects in developing countries, this paper shows that bidder entry is crucially endogenous, especially because it is determined by the auctioneer's bundling and unbundling strategy. If water treatment plant and distribution network works are bundled in a single lot package, competition would be significantly reduced, and this adverse entry effect would in turn raise the public procurement costs of infrastructure. There is no evidence of positive scope economies in the bidder cost structure. It is important to account for the underlying cost structure for designing efficient auction mechanisms.

Keywords: Investment and Investment Climate, Government Procurement, E-Business, Debt Markets, Markets and Market Access

Suggested Citation

Estache, Antonio and Iimi, Atsushi, (Un)Bundling Infrastructure Procurement: Evidence from Water Supply and Sewage Projects (March 1, 2009). World Bank Policy Research Working Paper Series, Vol. , pp. -, 2009. Available at SSRN: https://ssrn.com/abstract=1410475

Antonio Estache (Contact Author)

Université Libre de Bruxelles (ULB) - European Center for Advanced Research in Economics and Statistics (ECARES) ( email )

Ave. Franklin D Roosevelt, 50 - C.P. 114
Brussels, B-1050
Belgium
32 (0)2 6503838 (Phone)

Atsushi Iimi

International Monetary Fund (IMF)

700 19th Street, N.W.
Washington, DC 20431
United States

World Bank ( email )

1818 H Street NW
Washington, DC 20433
United States

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