ISER Discussion Paper, Institute of Social and Economic Research, Osaka University 740
This paper reports the theoretical and experimental results of auctions for public construction in which firms cut corners. We show that winning bids and qualities of the constructed buildings are both zero in equilibria if there are at least two firms whose initial cash balances are zero. The experimental results support that firms with zeroinitial cash balance win and that the winning bids and the qualities of the constructed buildings are considerably low.
Corner-cutting Public procurement First-price auction Experiment