Testing Low-Balling Strategy in Rural Road Procurement

Review of Industrial Organization, 2013, vol. 43, issue 3, 243-261

Abstract: A “low-balling strategy” by bidding contractors has increasingly been recognized as an important issue in public infrastructure procurement. Public works contracts are often imperfect and renegotiated after the contract award. Given the expectation for ex post adjustments, bidders seem motivated to take advantage of the low-balling strategy. This paper analyzes the endogeneity between the bid strategy and ex post adjustments. Using procurement data on rural road projects in Nepal, it shows that the bid strategy and adjustments are determined endogenously in the system. Anticipating cost and time overruns, firms would likely undercut normal bid prices. Then, ex post contract adjustments actually happen, because of their too aggressive bids. Copyright Springer Science+Business Media New York 2013

Keywords: Auction theory; Competition; Ethnicity; Governance; Market entry; Public procurement; Rural roads; D44; H54; H57; D82 (search for similar items in EconPapers)
Date: 2013
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Citations: View citations in EconPapers (8)

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Persistent link: https://EconPapers.repec.org/RePEc:kap:revind:v:43:y:2013:i:3:p:243-261

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DOI: 10.1007/s11151-013-9388-6

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