Auctions for Public Construction with Corner-Cutting
87 Pages Posted: 11 Jun 2009 Last revised: 27 Sep 2010
Date Written: May 31, 2010
This paper reports the theoretical and experimental results of auctions for public construction in which firms cut corners. We show that the winning bids and the winner's quality choices of the constructed buildings are both zero in equilibria if there are at least two firms whose initial cash balances are zero, and it is a common knowledge. The experimental results are close to the theoretical results and indicate that firms with zero-initial cash balance win and that the winning bids and the winner's quality choices of the constructed buildings are considerably low.
Keywords: Corner-cutting, Public procurement, First-price auction, Experiment
JEL Classification: C92, D44, L15
Suggested Citation: Suggested Citation