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Quantity choice in unit price contract procurements
Swedish National Road and Transport Research Institute, Society, environment and transport, Transport economics Stockholm.
Kungliga Tekniska Högskolan.
2011 (English)Report (Other (popular science, discussion, etc.))
Abstract [en]

A common approach for procuring large construction projects is through Unit Price Contracts. By the means of a simple model, we study the optimal quantity to procure under uncertainty regarding the actual required quantity given that the procurer strives to minimize expected total costs. The model shows that the quantity to procure in optimum follows from a trade-off between the risk of having to pay for more units than actually necessary and of having to conduct costly renegotiations. The optimal quantity increases in costs associated with possible renegotiations, decreases in expected per unit price, and, if a renegotiation does not increase per unit price too much, decreases in the uncertainty surrounding the actual quantity required.

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Place, publisher, year, edition, pages
Stockholm: Centre for Transport Studies Stockholm, Swedish National Road & Transport Research Institute (VTI), KTH Royal Institute of Technology, S-WoPEc, Scandinavian Working Papers in Economics , 2011. , 17 p.
CTS Working Paper, 2011:4
Keyword [en]
Price, Mathematical model, Transport infrastructure, Construction, Road construction
Keyword [sv]
Priser, Matematiska modeller, Transportinfrastruktur, Byggande, Vägbyggnad
National Category
Research subject
Road: General works, surveys, comprehensive works, Road: Economics
URN: urn:nbn:se:vti:diva-638OAI: diva2:669333
Available from: 2013-12-03 Created: 2013-12-03 Last updated: 2014-07-08Bibliographically approved

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Mandell, Svante
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Transport economics Stockholm

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ReferencesLink to record
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