The Impact of Public Information on Bidding in Highway Procurement Auctions

47 Pages Posted: 23 Nov 2005

See all articles by Dakshina G. De Silva

Dakshina G. De Silva

Department of Economics, Lancaster University Management School

Timothy Dunne

Federal Reserve Bank of Cleveland

Anuruddha Kankanamge

University of Oklahoma

Georgia Kosmopoulou

University of Oklahoma - Department of Economics

Date Written: February 2007

Abstract

A number of papers in the theoretical auction literature show that the release of information regarding the seller's valuation of an item can cause bidders to bid more aggressively. This widely accepted result in auction theory remains largely untested in the empirical literature. Recent theoretical work has also shown that this effect can be more pronounced in auctions with larger common cost uncertainty. We examine the impact of a policy change by the Oklahoma Department of Transportation that led to the release of the state's internal estimate of the costs to complete highway construction projects. We perform a differences-in-differences analysis comparing bidding in Texas, a state that had a uniform policy of revealing the same information all throughout the period of analysis, to bidding in Oklahoma. Our results show that, in comparison to Texas auctions, the average bid in Oklahoma fell after the change in engineers' cost estimate (ECE) policy. This decline in bids was even larger for projects where the common uncertainty in costs is greater. Moreover, the within-auction standard deviation of bids fell after the change in ECE policy with the most significant decline observed again in projects with greater common cost uncertainty.

Keywords: Information release, Procurement auctions

JEL Classification: D44, H57

Suggested Citation

De Silva, Dakshina G. and Dunne, Timothy and Kankanamge, Anuruddha and Kosmopoulou, Georgia, The Impact of Public Information on Bidding in Highway Procurement Auctions (February 2007). Available at SSRN: https://ssrn.com/abstract=851644 or http://dx.doi.org/10.2139/ssrn.851644

Dakshina G. De Silva

Department of Economics, Lancaster University Management School ( email )

Lancaster LA1 4YX
United Kingdom

Timothy Dunne

Federal Reserve Bank of Cleveland ( email )

PO Box 6387
Cleveland, OH 44101-1387
United States

Anuruddha Kankanamge

University of Oklahoma ( email )

307 W Brooks
Norman, OK 73019
United States

Georgia Kosmopoulou (Contact Author)

University of Oklahoma - Department of Economics ( email )

633 Elm Avenue
306 Ellison Hall
Norman, OK 73019
United States
405-325-3083 (Phone)
405-325-5842 (Fax)

HOME PAGE: http://georgiakosmopoulou.oucreate.com/

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