Why are bids not more unbalanced?
2011 (English)Report (Other academic)
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.
CTS Working Paper, 2011:13
Tender, Contractor, Behaviour, Risk, Contract, Mathematical model
Public Administration Studies
Research subject Road: General works, surveys, comprehensive works, Road: Economics
IdentifiersURN: urn:nbn:se:vti:diva-647OAI: oai:DiVA.org:vti-647DiVA: diva2:669342