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Strategic Bidding And Contract Renegotiation

Author

Listed:
  • Hojin Jung
  • Georgia Kosmopoulou
  • Carlos Lamarche
  • Richard Sicotte

Abstract

When firms bid in procurement auctions, they take into account the likelihood of future contract renegotiations. If they anticipate that certain input quantities will change ex post, they have an incentive to strategically skew their itemized bids, thereby increasing profits for themselves and costs for the procuring agency. We develop and estimate a structural model of strategic bidding using a data set of road construction projects in Vermont. We find that bidding strategies lead to increased markups for renegotiated items and reduced markups for nonrenegotiated items, results consistent with bid‐skewing.

Suggested Citation

  • Hojin Jung & Georgia Kosmopoulou & Carlos Lamarche & Richard Sicotte, 2019. "Strategic Bidding And Contract Renegotiation," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 60(2), pages 801-820, May.
    • Handle: RePEc:wly:iecrev:v:60:y:2019:i:2:p:801-820
    DOI: 10.1111/iere.12368
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    Cited by:

    1. Bonifaz, José L. & Saavedra, Eduardo H., 2023. "Aggressive bidding and the renegotiation of concession contracts: Empirical evidence from Peru," Utilities Policy, Elsevier, vol. 85(C).
    2. Hojin Jung & Georgia Kosmopoulou & Robert Press & Richard Sicotte, 2022. "Subcontracting and the incidence of change orders in procurement contracts," Economic Inquiry, Western Economic Association International, vol. 60(1), pages 247-264, January.
    3. Engel, Eduardo & Fischer, Ronald D. & Galetovic, Alexander, 2024. "The company you keep: Renegotiations and adverse selection in transportation infrastructure," Economics of Transportation, Elsevier, vol. 38(C).

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