IDEAS home Printed from https://ideas.repec.org/a/spr/epolin/v51y2024i1d10.1007_s40812-023-00257-1.html
   My bibliography  Save this article

An econometric identification of abnormally low bids in the procurement market: discriminant analysis

Author

Listed:
  • Jinook Jeong

    (Yonsei University)

  • Hyunwoo Lee

    (Yonsei University)

  • Jung Jae Kim

    (Emory University)

Abstract

In the public construction procurement market, ‘abnormally low bids (ALB)’ are prevalent and they cause many social and economic problems. Also, when the procurement bids are colluded, ALB make the competitive price systematically underestimated. As many countries regulate ALB, their criteria to identify ALB are not homogenous. Most of the criteria are based on construction cost, which is usually inaccurate, vulnerable to accounting manipulation, and limited to the supply side information of the market. We propose an econometric identification process of ALB using a discriminant analysis. It is based on a general mixture model and easily estimable by MLE. We apply our method to Korean public construction bidding data from 2007 to 2016. The estimation results identify the determinants of the bid prices, along with the determinants of ALB, and presents a more accurate assessment of the collusion damage.

Suggested Citation

  • Jinook Jeong & Hyunwoo Lee & Jung Jae Kim, 2024. "An econometric identification of abnormally low bids in the procurement market: discriminant analysis," Economia e Politica Industriale: Journal of Industrial and Business Economics, Springer;Associazione Amici di Economia e Politica Industriale, vol. 51(1), pages 211-234, March.
  • Handle: RePEc:spr:epolin:v:51:y:2024:i:1:d:10.1007_s40812-023-00257-1
    DOI: 10.1007/s40812-023-00257-1
    as

    Download full text from publisher

    File URL: http://link.springer.com/10.1007/s40812-023-00257-1
    File Function: Abstract
    Download Restriction: Access to the full text of the articles in this series is restricted.

    File URL: https://libkey.io/10.1007/s40812-023-00257-1?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to look for a different version below or search for a different version of it.

    Other versions of this item:

    More about this item

    Keywords

    Abnormally low bids; Discriminant analysis; Public procurement market;
    All these keywords.

    JEL classification:

    • H57 - Public Economics - - National Government Expenditures and Related Policies - - - Procurement
    • L40 - Industrial Organization - - Antitrust Issues and Policies - - - General
    • L70 - Industrial Organization - - Industry Studies: Primary Products and Construction - - - General

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:spr:epolin:v:51:y:2024:i:1:d:10.1007_s40812-023-00257-1. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no bibliographic references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Sonal Shukla or Springer Nature Abstracting and Indexing (email available below). General contact details of provider: http://www.springer.com .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.