JOINT BIDDING,GOVERNANCE AND PUBLIC PROCUREMENT COSTS:A CASE OF ROAD PROJECTS*

ABSTRACT *** : To utilize public resources efficiently, it is important to take advantage of competition in public procurement auctions to the maximum extent. Joint bidding is a common practice that potentially facilitates competition. By pooling financial and experiential resources, more firms are expected to enter the market, but it will also directly reduce competition if more than one bidder who is solely qualified makes a coalition. In theory joint bidding may or may not be beneficial to auctioneers, depending on the model. The paper empirically examines the impacts of joint bidding on firms' entry as well as bidding behaviour, using data on public road projects in developing countries. It shows that coalitional bids, in particular by local firms, would be competitive, but foreign joint ventures would undermine competition. It is also found that good governance can encourage firms' entry into the tendering and facilitate joint bidding practices.     

Joan Robinson and the three cambridge revolutions

Joan Robinson's association with three Cambridge ‘revolutions’—imperfect competition, effective demand and capital theory—is examined in the context of her personal and intellectual partnership with Richard Kahn, John Maynard Keynes and Piero Sraffa. Initially, imperfect competition appeared to have successfully extended marginal analysis to all market forms. It also allowed Richard Kahn and Joan Robinson to persuade Keynes to present the main argument of The General Theory in terms of aggregate demand and aggregate supply. By the early 1950s, however, Joan Robinson had rejected the Marshallian methodology and had become a strenuous censor of neoclassical theory. In this paper the origin of her critique is traced to her reading of Sraffa's Introduction to Ricardo's Principles.     

Asymmetric evolutionary games with non-linear pure strategy payoffs

In this paper, I extend the analytical framework of evolutionary game theory to games with two distinct types of players where the type-specific payoff functions are nonlinear on the right—bi-player-type nonlinear (BNL) evolutionary games. That is, asymmetric games where the payoffs for pairwise interactions are influenced by the ambient frequencies of the pertinent strategies of both types of players.While this paper is motivated by my interest in inter- and intra-gender conflicts of interest in sexual reproduction, BNL games also arise just as naturally in most two-species interactions. Thus, the methodology may provide a novel approach to investigating such classical ecological phenomena as prey–predator/host–parasite interactions and interspecies competition for resources.Finally, given the growing tendency to utilize evolutionary games in economic modeling, a case can be made for the current paper being of interest to traditional game-theoretic modelers in connection with situations such as buyer/seller or employer/employee interaction.     

The competitive conditions in the OECD manufacturing industry

The goal of this study was to assess the intensity of competition in the OECD manufacturing industry by using the Panzar and Rosse index over the period 1970–2011. For this purpose, we use the fully modified OLS method and second-generation unit root analysis to investigate the level of competition across two-digit manufacturing sectors. The results are robust and consistent with similar studies, leading to the rejection of perfect collusion and perfect competition, while providing evidence in favour of monopolistic competition. Similarly to other empirical studies, H-statistics are shown to be heterogeneous across manufacturing sectors. We argue that more concentrated sectors such as food and beverages, motor vehicles and furniture have low levels of H-statistic being thus less competitive than other industries (i.e. computers transportation equipment, printing and chemicals), where the H-statistic is closer to unity. Lastly, our analysis will be a useful policy tool to achieve structural micro-economic goals.     

Voluntary Environmental Agreements and Competition Policy

Voluntary environmental agreements are oftensuspected to promote collusive practicesbetween participating firms. The paperaddresses the antitrust implications ofGermany's voluntary Dual Management System forPackaging Waste Collection and Recycling (DSD). It uses analytical tools of the economictheory of the firm to examine features ofDSD's governance structure that were oftenidentified to impede competition. While thepaper does not argue that DSD performs asefficiently as a hypothetical solution in amore competitive setting, it shows that thesefeatures have an economic rationale from theviewpoint of the theory of the firm. Thegeneral conclusion is that it is necessary tocarefully analyze the institutional fine-tuningof a voluntary agreement in order to derive theoverall impact stemming from a formal lack ofcompetition. A more case-to-case-oriented,institutional research approach could thereforefruitfully supplement model-driven, theoreticalanalyses of voluntary environmental agreementsand their effect on market competition.     

Harvesting to Extinction: Is It Socially Rational?

This paper presents a critique of the neoclassical view of the optimal use of renewable resources and offers an alternative view based on the method of classical thermodynamics. The presentation is forwarded via the issue of harvesting to extinction. Based on simple models, the traditional theory suggests that society would benefit from wiping out any renewable resource whose intrinsic growth rate, though positive, is smaller than the social rate of time preference. The latter is the rate society is using to discount its future benefits and costs. To bypass this ecologically implausible outcome, the simplistic assumptions have been modified in various ways. For example, either the costs or the benefits of harvesting have been made to depend on the stock of the resource as well as on the yield. The modifications offered make society less prone to wipe out resources intentionally, but they still disregard a more fundamental difficulty: The traditional theory is not consistent with the second law of thermodynamics; it describes a process that defies the second law, which no known system is able to be undergoing. No doubt, the theory should be challenged first and foremost on this ground, but none of the offered modifications is capable of annulling this inconsistency. A deeper change is needed because the social values of the resource as perceived by a society that behaves in manners consistent with the second law and as defined by the traditional theory necessarily differ. The paper identifies the socially consistent value and shows that harvesting to extinction is never optimal socially. Were society to follow the socially inconsistent value, it would always underestimate the importance of self-sustained resources. However, the unlikely refutability of the second law turns this possibility and the socially favored extinctions into arguable outcomes of an untenable theory rather than undesirable outcomes of a sound theory. Potentially growing renewable resources are wiped out in real life for various reasons, but when they are preyed to extinction, their unfortunate fate is an outcome of the dynamics of a socially unregulated system rather than a social objective coming to fruition. This revised version was published online in July 2006 with corrections to the Cover Date.     

Elections as takeover bids: Some agonistics concerning good government

Agency theory has been widely applied to the governance of business corporations and to good advantage. The formal framework of agency theory pertains as well to polities, wherein citizens are the principals and politicians the agents. Where takeover efforts occur irregularly for corporations, they occur at regular intervals through elections for polities. Timothy Besley’s Principled Agents uses the agency theory to argue that electoral competition will generally select competent and public-spirited politicians. This claim follows from his formal framework, but that framework ignores some questionable and unsettled matters that challenge Besley’s relatively roseate view of the qualitative character of electoral selection.      

Competition and Competition Policy in the Trans‐Tasman Air Travel Market

New data on air fares offered on 29 trans‐Tasman and domestic New Zealand routes are analysed to test whether competition between traditional or ‘legacy’ airlines still matters for pricing in the new air travel regime characterised by internet booking systems and competition from low cost carriers. It is found that market structure does indeed still matter. Air fares are significantly lower on those domestic New Zealand routes where Air New Zealand faces competition from Qantas. In addition, on the trans‐Tasman routes, the new entrants Virgin (Pacific) Blue and Emirates have put competitive pressure on Air New Zealand and Qantas, but such pressure would not be sufficient to compensate for loss of independent competition between the larger incumbents.     

Judging quality by price,snob appeal,and the new consumer theory

Conclusion The analysis contained in this paper has served two purposes. First, it has demonstrated the richness of the new consumer theory by showing how this new approach can incorporate the questions of judging quality by price and price-snob appeal. And second, the paper has derived analytically the conditions under which these phenomena will yield a positively sloping demand curve in a two-commodity, two-attribute world.In traditional theory the consumer's response to a change in the price of a good is conceptually divided into an income effect and a substitution effect. The new approach to consumer theory partitions the consumer's response differently, namely, into an efficiency substitution and a utility substitution. When a general price attribute is introduced each of these divisions retains its individual validity. The conclusion that the efficiency substitution is always non-positive also remains valid. But, the traditional substitution effect may now be positive and of sufficient magnitude to make theentire response to an own-price changepositive,x _i /p _i >0. We have shown analytically, then, as the verbal discussions of traditional consumer theory lead us to believe, that judgment of quality by price and price-snob appeal can result in positively sloped demand curves.The research described in this paper was supported in part by the Econometric Research Program at Princeton University. The authors would like to thank Professors W. J. Baumol, O. Morgenstern, and R. E. Quandt, Messrs. F. D. Gately and R. J. Sweeney, and other members of the Seminar on Research in Progress, Department of Economics, Princeton University, for their helpful comments and suggestions. Of course, any errors that may remain are solely our responsibility.     

The Austrian Tertius Gaudens: A Revisit of Competition Theory in Light of Georg Simmel

Austrian market process theory stands out in assigning particular importance to the role of the customer. This is however not really salient as competition is discussed save for in a few particular instances. This is a pity since the market process discourse thereby deprives itself of a firm progressive footing concerning further elaborations of how market dynamics evolve. By drawing on the reasoning that originates some hundred years ago with the works of Georg Simmel, this paper brings forward an Austrian version of his idea on Tertius Gaudens. In a market context this is the alert buyer who benefits from the disunion that prevails between sellers to the extent that market intimacy, conceived of as supplier specificity, is low. In this manner some of the inner workings of the market process, what promotes competition subject to which institutional constraints, are discussed to the benefit of yet another important Austrian demarcation, that of competition as being geared by the customer.     

James Buchanan’s theory of federalism: from fiscal equity to the ideal political order

The distinct characteristic in James Buchanan’s thinking about federalism in contrast to the traditional theory of fiscal federalism is his view about fiscal competition. In this paper, it is demonstrated that this thinking went through three stages. From the 1950s to the beginning of the 1970s, his analyses were well embedded in the traditional fiscal federalism literature and concerned with equity and efficiency issues. In the Leviathan approach starting from the mid-seventies, he considered competition between jurisdictions as a means to restrict Leviathan governments. In his interpretation of federalism as an ideal political order, Buchanan binds these perspectives together and adds a procedural view: Federalism enables citizens to exert political control, it raises their interest in politics because one vote has more influence, and it facilitates to act morally within their moral capacity.     

Real business cycles with Cournot competition and endogenous entry

We introduce strategic interactions with quantity competition a` la Cournot and endogenous entry in an RBC model with homogenous goods. In the long run, the steady state mark up is decreasing in the capital share, in the discount factor and in the level of technology, while it is increasing in the rate of bankruptcy and in the entry cost. In the short run, a competition effect amplifies the propagation of the shocks and generates procyclical profits and countercyclical mark ups. We extend the model to different forms of competition (as imperfect collusion and Stackelberg competition). The analysis of technology and preference shocks and of the second moments suggests that the model outperforms the RBC in terms of variability of output, labor and, of course, profits and mark ups.     

ON THE PROFITABILITY OF RESALE PRICE MAINTENANCE WHEN DEMAND IS UNCERTAIN

A previous study finds that in a market where a manufacturer faces uncertain demand and sells to consumers through competitive retailers, the manufacture wishes to support adequate retail inventories by imposing resale price maintenance (RPM). I show that if retail inventories are allocated to consumers through first‐come‐first‐served rule rather than efficient rationing rule in the game with unconstrained retail competition, imposing RPM may not be profitable. It may not encourage more retail inventories either. RPM may also lower consumer surpluses and social welfare. This study casts some doubt on the demand uncertainty theory that supports RPM.     

Dissertation abstract: “Essays in applied economics on the intervention of a third player in agency relationships”

Agency theory has established that appropriate incentives can reconcile the diverging interests of the principal and the agent. Focusing on three applications, this dissertation evaluates the empirical relevance of these results when a third party interacts with the primary contract. The analyses provided rely on either laboratory or natural experiments. First, corruption is analyzed as a two-contract situation: a delegation contract between a Principal and an Agent and a corruption pact concluded between this Agent and a third player, called Briber. A survey of the recent microeconomic literature on corruption first highlights how corruption behavior results from the properties of those two agreements. We thereafter show that the Agent faces a conflict in reciprocities due to those two conflicting agreements. The resulting delegation effect, supported by observed behavior in our three-player experimental game, could account for the deterrence effect of wages on corruption. Second, health care is governed by contradictory objectives: patients are mainly concerned with the health provided, whereas containing health care costs is the primary goal of health care administrators. We provide further insights into the ability of incentives to balance these two competing objectives. In this matter, our theoretical and econometric analysis evaluates how a new mixed compensation scheme, introduced in Quebec in 1999 as an alternative to fee-for-services, has affected physicians’ practice patterns. Free switching is shown to be an essential feature of the reform, since it implements screening between physicians. Finally, the demand for underground work departs from the traditional Beckerian approach to illegal behavior, due to the dependence of benefits from illegality on competitors’ behavior. We set up a theoretical model in which the demand for underground work from all producers competing on the same output market is analyzed simultaneously. We first show that competition drastically undermines the individual benefits of tax evasion. At equilibrium, each firm nonetheless chooses evasion with a positive probability, strictly lower than one. This Bertrand curse could then account for the “tax evasion puzzle” i.e. the overprediction of evasion in models that ignore market interactions. We thereafter show that allowing firms to denounce competitors’ evasion is not likely to solve this curse—by providing a credible threat against price cuts, it fosters illegal work. Empirical evidence from a laboratory experiment confirms these predictions. Without denunciation, experimental firms often choose evasion whereas evasion benefits are canceled out by competition. When introduced, denunciation is rarely used by firms, but the threat makes evasion profitable. JEL Classification K42, I18, D21, C25, C91     

Adam Smith: From Propriety and Sentiments to Property and Wealth

“Why return to Adam Smith?” Because we learn that he had fresh-for-today insights, derived from a modeling perspective that was never part of economic analysis. Smith wrote two classics: The Theory of Moral Sentiments (1759; hereafter Sentiments); and An Inquiry into the Nature and Causes of the Wealth of Nations (1776; hereafter Wealth). In Sentiments it is argued that human sociability in close-knit groups is governed by the “propriety and fitness” of conduct based on sympathy. This non-utilitarian model provides new insights into the results of 2-person experimental “trust” and other games that defied the predictions of traditional game theory in the 1980s and 90s, and offers testable new predictions. Moreover, Smith shows how the civil order of “property” grew naturally out of the rules of propriety. Property together with what I call Smith's Discovery Axiom then enabled his break-through in Wealth that defined the liberal intellectual and practical foundation of two centuries of Western economic growth.     

Competition in the political arena and local government performance

Competition reduces rent extraction in private-sector firms. In this article, we empirically assess whether it similarly disciplines politicians by evaluating local-level governments’ performance in Flanders. The results indicate that electoral competition – measured via the number of parties competing in elections – significantly positively affects the productive efficiency of municipal policy. Intertemporal competition – measured as the volatility of election outcomes over time – has a similar, but weaker, positive effect. These beneficial effects are mitigated by the fact that competition may lead to more fragmented governments, which is shown to work against their productive efficiency. Overall, though, the beneficial effects outweigh the unfavourable ones in our sample.     

China's Post-Listian Rise: Beyond Radical Globalisation Theory and the Political Economy of Neoliberal Hegemony

While China's rise has been much discussed, its meaning continues to be contested. This is true in radical international political economy, where, for example, it was the subject of (often polarised) debates between Giovanni Arrighi and David Harvey prior to Arrighi's death in 2009. This reflected a broader debate in IPE between development theory and radical globalisation analysis. The key point of contention is whether China's rise represents a challenge to or further consolidation of neoliberal hegemony on a global scale. This article critically scrutinises some of the key assumptions of the radical globalisation approach, specifically, that China represents another form of the ‘competition state’ whose development aspirations have been radically constrained by global ‘new constitutionalism’ and American monetary power so as to conform to neoliberalism. Deploying a structurationist approach to global governance and an eclectic/regulatory analysis of the Chinese state, I argue that China has challenged neoliberalism by projecting its growing power through constitutionalised global governance. In the face of (declining) American power, global constitutionalism has provided an opportunity structure that may help China consolidate its long-term strategy of consensual development. Far from anchoring ‘neoliberal hegemony’, global economic governance is increasingly central to its unravelling.     

Supply and demand explanations and their ceteris paribusclauses

This paper argues that supply and demand explantions are causal explanations and that it is helpful to recognize this fact explicity, for then one can appreciate that the variables impounded in the ceteris paribusclauses attached to supply and demand curves are other causes. One can then specify clearly the conditions of membership in a ceteris pairbusclause: 1) include all those factors that within the given time period significantly affect the amount supplied or demanded but; 2) do not include any factors that themselves within the given time period significantly depend on the price of the particular commodity or service. Note the vague word ‘significantly’. If one insists on the general interdependencies established in general equilibrium analyses, one must reject partial equilibrium analyses altogether, but to do so would rule out work that may be enlightening and useful. Such theoretical purism is also indefensible, since general equilibrium analyse rely on similar causal approximations. This analyses of ceteris paribusclauses is helpful in understanding where supply and demand analysis or comparative statics goes wrong, as in traditional functional distribution theory.     

Evaluating the long-run impacts of the 9/11 terrorist attacks on US domestic airline travel

As a result of the Public Utilitie Regulatory Policies Act of 1978 (PURPA), state public utility commissions have begun to implement cost-based rate-setting procedures in order to rationalize energy choices made by utilities and utility customers. This rationalization had been necessary in view of the increased competition characterizing the eletric utility industry. Taking these regulatory and competitive change as a point of departure we develop and implement an electricity rate-setting model which is cost based, which explicitly accounts for static and dynamic competitive pressures, and which is welfare maximizing. The model extends standard Ramsey methods to include bothshort-run andlong-run price responses in the inverse elasticity rule. We use the estimated model to evalute and design alternative rates. Our analysis takes a distincly strategic approach, explicitly addressing competition from other fuels and the possibility of competitive bypass.     

ON THE DETERMINANTS OF LOCAL TAX RATES: NEW EVIDENCE FROM SPAIN

This article examines the determinants of local tax rates. For the two main local taxes in Spain—the property tax and the motor vehicle tax—we test the existence of tax mimicking, yardstick competition, and political trends in a sample of 2,713 municipalities. Using various spatial models, the results support the hypothesis of tax mimicking, with coefficients above 0.40. We also show the relevance of political variables such as the ideology of incumbents and political fragmentation. The fact that incumbents with weaker political support exhibit stronger mimicking behavior is interpreted as evidence in favor of yardstick competition. Finally, we find that incumbents mimic neighboring municipalities ruled by the same political party, confirming the political trends hypothesis. (JEL C31, H71, H77)