RICERCHE

Awarding Price, Contract Performance and Bids Screening: Evidence from Procurement Auctions

Francesco Decarolis forthcoming at the American Economic Journal: Applied Economics (2013).

Abstract: This paper presents evidence on the perverse trade-o that rst price auctions induce between low prices at the awarding stage and poor ex post performance when bids are not binding commitments. By exploiting the di erent timing with which rst price auctions were introduced in Italy to procure public works, this study nds that at least half of the cost savings from lower winning prices are lost because of ex post renegotiation. Screening the lowest price bid for its responsiveness prevents performance worsening but also reduces the initial cost savings by a third and induces delays in awarding the contract. JEL: L22, L74, D44, D82, H57. Keywords: Procurement, Auctions, Renegotiation, Di erence-in-Di erences.

Paper link