Auctions for Public Construction with Corner-Cutting

87 Pages Posted: 11 Jun 2009 Last revised: 27 Sep 2010

See all articles by Kenju Akai

Kenju Akai

Osaka University - Institute of Social and Economic Research

Shigehiro Serizawa

Osaka University - Institute of Social and Economic Research (ISER)

Date Written: May 31, 2010

Abstract

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

Akai, Kenju and Serizawa, Shigehiro, Auctions for Public Construction with Corner-Cutting (May 31, 2010). ISER Discussion Paper No. 740, Available at SSRN: https://ssrn.com/abstract=1410503 or http://dx.doi.org/10.2139/ssrn.1410503

Kenju Akai (Contact Author)

Osaka University - Institute of Social and Economic Research ( email )

6-1 Mihogaoka
Ibaraki, Osaka 567-0047
Japan
06-6879-8552 (Phone)
06-6879-8584 (Fax)

Shigehiro Serizawa

Osaka University - Institute of Social and Economic Research (ISER) ( email )

6-1 Mihogaoka
Ibaraki, Osaka 567-0047
Japan
+81 6 6879 8558 (Phone)
+81 6 6878 2766 (Fax)

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