COMPARING PUBLIC PROCUREMENT AUCTIONS |
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| Authors: | Francesco Decarolis |
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| Institution: | Università Bocconi, ItalyThis article supersedes an earlier version circulating under the title “When the Highest Bidder Loses the Auction: Theory and Evidence from Procurement Auctions,” which was the main chapter of my Ph.D. thesis, supported by the Henry Morgenthau dissertation fellowship of the University of Chicago and the Economic Fellowship of the Bank of Italy. I am grateful to Ali Hortacsu, Roger Myerson, Philip Reny, and Timothy Conley for their guidance. I thankfully acknowledge the many comments received on earlier drafts from Susan Athey, Marianne Bertrand, Peter Cramton, Jeremy Fox, Amit Gandhi, Ken Hendricks, Jean‐Francois Houde, Jakub Kastl, Jonathan Levin, Greg Lewis, Gustavo Piga, Rob Porter, Marc Rysman, Jesse Shapiro, and Giancarlo Spagnolo. I also benefited from aid with the data collection of the Bank of Italy and the Italian Authority for Public Contracts. |
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| Abstract: | This article contrasts two auction formats often used in public procurement: first price auctions with ex post screening of bid responsiveness and average bid auctions (ABAs), in which the bidder closest to the average bid wins. The equilibrium analysis reveals that their ranking is ambiguous in terms of revenues, but the ABA is typically less efficient. Using a data set of Italian public procurement auctions run alternately under the two formats, a structural model of bidding is estimated for the subsample of first price auctions and used to quantify the efficiency loss under counterfactual ABAs. |
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