Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/185726
Authors: 
Herweg, Fabian
Schwarz, Marco A.
Year of Publication: 
2017
Series/Report no.: 
Discussion Paper 56
Abstract: 
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 multi-dimensional auction, i.e., under the optimal scoring auction each supplier proposes the standard design.
Subjects: 
auction
cost overrun
procurement
renegotiation
JEL: 
D44
D82
H57
Document Type: 
Working Paper

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