The Impact of Public Information on Bidding in Highway Procurement Auctions

Abstract

A number of papers in the theoretical auction literature show that the release of information regarding the seller's valuation of an item can cause bidders to bid more aggressively. This widely accepted result in auction theory remains largely untested in the empirical literature. Recent theoretical work has also shown that this effect can be more pronounced in auctions with larger common cost uncertainty. We examine the impact of a policy change by the Oklahoma Department of Transportation that led to the release of the state's internal estimate of the costs to complete highway construction projects. We perform a differences-indifferences analysis comparing bidding in Texas, a state that had a uniform policy of revealing the same information all throughout the period of analysis, to bidding in Oklahoma. Our results show that, in comparison to Texas auctions, the average bid in Oklahoma fell after the change in engineers' cost estimate (ECE) policy. This decline in bids was even larger for projects where the common uncertainty in costs is greater. Moreover, the within-auction standard deviation of bids fell after the change in ECE policy with the most significant decline observed again in projects with greater common cost uncertainty.

Disadvantaged business enterprise goals in government procurement contracting: An analysis of bidding behavior and costs

“…We require a sample of projects that are relatively homogeneous and fit the IPV framework. From related literature (see Bajari and Ye, 2003;de Silva et al, 2008) and our discussions with state highway and civil engineers, we believe that asphalt projects appear to best match these requirements. Asphalt projects rely more on the individual firm's state of equipment and internal efficiency to determine the cost and are relatively homogeneous.…”

Effects of Transparency in Procurement Practices on Government Expenditure: A Case Study of Municipal Public Works

“…This section examines the effect of improved transparency in procurement auctions on the bidding behavior, using a panel-data DID approach, employed by, for example, De Silva et al (2008). Based on the analysis of the bidding behavior, this section also estimates the extent to which a government decreases its procurement expenditure by introducing transparent practices.…”

Public–Private Agreements, Institutions, and Competition: When Economic Theory Meets Facts

“…In that case, it won't be possible to ensure non-winning cartel members that they will be compensated by the winner as initially planned in the collusion pact. De Silva et al (2008) discuss the disclosure of information on confidential details about the project (e.g. the state's engineers' costs estimates) in the case of procurement auction in the construction sector.…”