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Optimal Cost Overruns : Procurement Auctions with Renegotiation

Title data

Herweg, Fabian ; Schwarz, Marco A.:
Optimal Cost Overruns : Procurement Auctions with Renegotiation.
In: International Economic Review. Vol. 59 (4 June 2018) Issue 4 . - pp. 1995-2021.
ISSN 0020-6598
DOI: https://doi.org/10.1111/iere.12327

Official URL: Volltext

Abstract in another language

Cost overrun is ubiquitous in public procurement. We argue that this can be the result of a constrained optimal award procedure: The procurer awards the contract via a price‐only auction and cannot commit not to renegotiate. If cost differences are more pronounced for a fancy than a standard design, it is optimal to fix the standard design ex ante. If renegotiation takes place and the fancy design has higher production costs or the contractor's bargaining position is strong, the final price exceeds the initial price. Moreover, the procurer cannot benefit from using a scoring auction.

Further data

Item Type: Article in a journal
Refereed: Yes
Keywords: Auction; Cost Overrun; Procurement; Renegotiation
Subject classification: JEL Codes: D44, D82, H57
Institutions of the University: Faculties > Faculty of Law, Business and Economics > Department of Economics > Chair Economics VIII: International Competition Policy > Chair Economics VIII: International Competition Policy - Univ.-Prof. Dr. Fabian Herweg
Result of work at the UBT: Yes
DDC Subjects: 300 Social sciences
300 Social sciences > 330 Economics
Date Deposited: 03 Dec 2019 08:18
Last Modified: 03 Dec 2019 08:18
URI: https://eref.uni-bayreuth.de/id/eprint/40915