Holding an Auction for the Wrong Project

De Chiara, Alessandro (2015): Holding an Auction for the Wrong Project.

Abstract

How does the probability of being involved in a renegotiation during the execution of a procurement contract affect the behavior of the interested contractors? What are its implications for the optimal contractual choice made by the buyer? We investigate these issues in a context characterized by uncertainty about the adequateness of the project initially specified by the buyer. We determine under which circumstances the buyer may find it profitable to hold an auction for a project design which ex-ante does not have the highest probability of being adequate.

• Item Type: MPRA Paper
• Language: English
• Keywords: Asymmetric Auctions, Procurement, Renegotiation.
• Subjects: D - Microeconomics > D4 - Market Structure, Pricing, and Design > D44 - Auctions; D - Microeconomics > D8 - Information, Knowledge, and Uncertainty > D86 - Economics of Contract: Theory; H - Public Economics > H5 - National Government Expenditures and Related Policies > H57 - Procurement

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