Competition and cost overruns in procurement

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• dc.contributor.author Ganuza, Juan-Joséca
• dc.contributor.other Universitat Pompeu Fabra. Departament d'Economia i Empresa
• dc.date.accessioned 2017-07-26T12:08:01Z
• dc.date.available 2017-07-26T12:08:01Z
• dc.date.issued 2003-10-01
• dc.date.modified 2017-07-23T02:08:43Z
• dc.description.abstract Most cases of cost overruns in public procurement are related to important changes in the initial project design. This paper deals with the problem of design speciffication in public procurement and provides a rationale for design misspeciffication. We propose a model in which the sponsor decides how much to invest in design speciffication and awards competitively the project to a contractor. After the project has been awarded the sponsor engages in bilateral renegotiation with the contractor, in order to accommodate changes in the initial project's design that new information makes desirable. When procurement takes place in the presence of horizontally differentiated contractors, the design's speciffication level is seen to affect the resulting degree of competition. The paper highlights this interaction between market competition and design speciffication and shows that the sponsor's optimal strategy, when facing an imperfectly competitive market supply, is to underinvest in design speciffication so as to make signifficant cost overruns likely. Since no such misspeciffication occurs in a perfectly competitive market, cost overruns are seen to arise as a consequence of lack of competition in the procurement market.
• dc.format.mimetype application/pdfca
• dc.identifier https://econ-papers.upf.edu/ca/paper.php?id=772
• dc.identifier.uri http://hdl.handle.net/10230/798
• dc.language.iso eng
• dc.relation.ispartofseries Economics and Business Working Papers Series; 772
• dc.rights L'accés als continguts d'aquest document queda condicionat a l'acceptació de les condicions d'ús establertes per la següent llicència Creative Commons
• dc.rights.accessRights info:eu-repo/semantics/openAccess
• dc.rights.uri http://creativecommons.org/licenses/by-nc-nd/3.0/es/
• dc.subject.keyword cost overruns
• dc.subject.keyword procurement contracts
• dc.subject.keyword strategic ignorance
• dc.subject.keyword Microeconomics
• dc.title Competition and cost overruns in procurementca
• dc.type info:eu-repo/semantics/workingPaper