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Holding an Auction for the Wrong Project

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  • De Chiara, Alessandro

Abstract

How does the probability of being involved in a renegotiation during the execution of a procurement contract affect the behavior of the interested contractors? What are its implications for the optimal contractual choice made by the buyer? We investigate these issues in a context characterized by uncertainty about the adequateness of the project initially specified by the buyer. We determine under which circumstances the buyer may find it profitable to hold an auction for a project design which ex-ante does not have the highest probability of being adequate.

Suggested Citation

  • De Chiara, Alessandro, 2015. "Holding an Auction for the Wrong Project," MPRA Paper 72108, University Library of Munich, Germany, revised 21 Apr 2015.
    • Handle: RePEc:pra:mprapa:72108
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    File URL: https://mpra.ub.uni-muenchen.de/72108/1/MPRA_paper_72108.pdf
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    References listed on IDEAS

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    Cited by:

    1. Fabian Herweg & Marco A. Schwarz, 2018. "Optimal Cost Overruns: Procurement Auctions With Renegotiation," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 59(4), pages 1995-2021, November.

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    More about this item

    Keywords

    Asymmetric Auctions; Procurement; Renegotiation.;
    All these keywords.

    JEL classification:

    • D44 - Microeconomics - - Market Structure, Pricing, and Design - - - Auctions
    • D86 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Economics of Contract Law
    • H57 - Public Economics - - National Government Expenditures and Related Policies - - - Procurement

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