Date of Award

2016

Degree Type

Dissertation

Degree Name

Doctor of Philosophy (PhD)

Graduate Group

Applied Economics

First Advisor

Joseph Harrington

Abstract

This dissertation consists of two self-contained chapters that explore intriguing properties of procurement auctions. The first chapter empirically analyzes procurement auctions in which suppliers must decide their bids based on expectations about how future market conditions will affect their costs. While previous literature has focused on the uncertainty about winning or losing the auction, I examine the risk that is intrinsic to the contract. I use data from government procurement auctions in the State of Sao Paulo in Brazil for fresh produce to study the effect of contract risk on auction outcomes. I find that suppliers are risk averse and therefore include a risk premium in the prices they bid, which can reach 38\% of the price for some goods. In addition, I show that a simple change in the payment scheme, in which the government pays a fixed amount plus 40\% of the reference index of wholesale prices, could reduce the risk premium to less than 1\% of the bid price for all goods analyzed.

The second chapter analyzes the phenomenon of jump bidding, when a bidder places a bid that is larger than necessary to outbid the current winning bid. Models that explain this type of behavior say that jump bidding arise as a signaling strategy to communicate strength to competitors. However, using a large dataset of procurement auctions that spans across different industries, the predictions of those models do not match the patterns observed in the data. I find that winners place smaller jumps on average, which contradicts the signaling strategy and suggests that jumps might not be monotonic in the bidders' valuations.

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Included in

Economics Commons

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