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Why are bids not more unbalanced?
Swedish National Road and Transport Research Institute, Society, environment and transport, Transport economics Stockholm.
Swedish National Road and Transport Research Institute, Society, environment and transport, Transport economics Stockholm.
2011 (English)Report (Other academic)
Abstract [en]

Earlier theoretical models of unbalanced bidding in unit price contracts (UPC) ofter predict corner solutions, i.e. zero bids for unit prices of expected overextimated quantities. However, anecdotal evidence indicates a lack of zero bids in the actual contracts. We pursue a possible explanation for this anomaly in risk-aversion of the contractor. Using a simple model we show that a contractor with superior information may exploit this in the bidding process to increase her expectd revenue. However, in so doing she increases her risk exposure. If the contractor is risk-averse, she typically will avoid a corner solution to this risk vs. expected return trade-off.

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. , 14 p.
Series
CTS Working Paper, 2011:13
Keyword [en]
Tender, Contractor, Behaviour, Risk, Contract, Mathematical model
National Category
Public Administration Studies
Research subject
Road: General works, surveys, comprehensive works, Road: Economics
Identifiers
URN: urn:nbn:se:vti:diva-647OAI: oai:DiVA.org:vti-647DiVA: diva2:669342
Available from: 2013-12-03 Created: 2013-12-03 Last updated: 2014-03-17Bibliographically approved

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Mandell, SvanteNyström, Johan
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CiteExportLink to record
Permanent link

Direct link
Cite
Citation style
  • apa
  • ieee
  • modern-language-association-8th-edition
  • vancouver
  • Other style
More styles
Language
  • de-DE
  • en-GB
  • en-US
  • fi-FI
  • nn-NO
  • nn-NB
  • sv-SE
  • Other locale
More languages
Output format
  • html
  • text
  • asciidoc
  • rtf