Multibidding Game under Uncertainty

This paper considers situations in which a set of agents has to decide whether to carry out a given public project or its alternative when agents hold private information. I propose the use of the individually-rational and budget-balanced multibidding mechanism according to which the game to be played by participants has only one stage and simple rules as defined by Pérez-Castrillo and Wettstein (2002) under complete information. It can be applied in a wide range of situations, and its symmetric Bayes-Nash equilibria deliver ex post efficient outcomes if the number of players is two - for any underlying symmetric distribution characterizing uncertainty - or very large.

Corruption and Collusion in Procurement Tenders

There is a mounting body of evidence that collusive agreements between bidders in large multiple-object procurement tenders are often supported by a corrupt administrator. In a first-price multiple-object auction, if the auctioneer has some legal discretion to allow bidders to readjust their offers prior to the official opening, he also has incentives to extract bribes from agents in exchange for abusing this discretion. In particular, corrupt agent’s incentives to receive bribes are closely linked with that of creating a ’bidding ring’ as the agent’s discretionary power gains value when firms collude. Thus, corruption generates focal equilibria where bidders fully refrain from competing with each other. Additional flexibility of the auction format such as the possibility to submit package bids, which is often considered to be efficiency-enhancing in theoretical literature, increases the risk of collusion in the presence of corruption. Such problems are more likely to arise in tenders, where participating firms are not too close competitors.auctions, corruption, collusion

Collusive market-sharing and corruption in procurement

This paper investigates links between corruption and collusion in procurement. A first-price multiple-object auction is administered by an agent who has legal discretion to allow for a readjustment of (all) submitted offers before the official opening. The agent may be corrupt, i.e. willing to "sell" his decision in exchange for a bribe. Our main result shows that the corrupt agent's incentives to extract rents are closely linked with that of a cartel of bidders. First, collusive bidding conveys value to the agent's decision power. Second, self-interested abuse of discretion to extract rents (corruption) provides a mechanism to enforce collusion. A second result is that package bidding can facilitate collusion. We also find that with corruption, collusion is more likely in auctions where firms are small relative to the market. Our main message to auction designers, competition authorities and criminal courts is that risks of collusion and of corruption must be addressed simultaneously. Some other policy implications for the design of tender procedures are discussed.auction ; corruption ; collusion

Contracting for Infrastructure Projects as Credence Goods

Large infrastructure projects are a major responsibility of government, who usually lacks expertise to fully specify the demanded projects. Contractors, typically experts on such projects, advise of the needed design in their bids. Producing the right design is nevertheless costly. We model the contracting for such infrastructure projects taking into account this credence goods feature and examine the performance of commonly used contracting methods. We show that when building costs are public information, multistage competitive bidding involving shortlisting of two contractors and contingent compensation of both contractors on design efforts outperforms sequential search and the traditional Design-and-Build approach. While the latter leads to minimum design effort, sequential search suffers from a commitment problem. If building costs are the private information of the contractors and are revealed to them after design cost is sunk, competitive bidding may involve sampling more than two contractors. The commitment problem under sequential search may be overcome by the procurer's incentive to search for low building cost if the design cost is sufficiently low. If this is the case, sequential search may outperform competitive bidding.Credence Goods, Design-Build, Competitive Bidding, Sequential Search, Infrastructure Projects

The use and evaluation of a simulation game to teach professional practice skills to undergraduate Architecture students

Architects are currently grappling to exploit new forms of communication made possible with developments in internet communication. At the same time, the construction industry is in a state of flux as novel project management systems are being introduced. Students need to understand the first principles of project management within the context of our changing environment. One of the best ways for students to learn about the legalities of the construction process is through role play and simulation, but there is a Catch 22. Unless students have a basic understanding of project management, the contractual process can be confusing and intimidating. Even fifth and sixth year architecture student are reluctant to ask practitioners questions, for fear of appearing ignorant. This paper describes the use of a web-based simulation game to deliver the Management, Practice and Law syllabus to Architecture Students. The web-based game allows students to critically observe the transformation of designs into buildings through the exploration of the contract management process. A questionnaire survey was used to assess the efficacy of the simulation game as a learning tool, and in particular the effectiveness of the web-based simulation in facilitating the development of professional practice skills in undergraduate Architecture students. The initial results of the assessment indicate that the simulation game is both a useful and complementary adjunct to traditional teaching and learning methods, as observed through the evaluation of outcomes, and helpful in developing generic professional practice skills of undergraduate students. Further game development will require more formal evaluation over a series of uses

Core-stable rings in auctions with independent private values.

We propose a semi-cooperative game theoretic approach to check whether a given coalition is stable in a Bayesian game with independent private values. The ex ante expected utilities of coalitions, at an incentive compatible (noncooperative) coalitional equilibrium, describe a (cooperative) partition form game. A coalition is core-stable if the core of a suitable characteristic function, derived from the partition form game, is not empty. As an application, we study collusion in auctions in which the bidders' final utility possibly depends on the winner's identity. We show that such direct externalities offer a possible explanation for cartels'structures (not) observed in practice.Core; partition function game; Collusion; Auctions; Bayesian game;

Core-stable Rings in Auctions with Independent Private Values

We propose a semi-cooperative game theoretic approach to check whether a given coalition is stable in a Bayesian game with independent private values. The ex ante expected utilities of coalitions, at an incentive compatible (noncooperative) coalitional equilibrium, describe a (cooperative) partition form game. A coalition is core-stable if the core of a suitable characteristic function, derived from the partition form game, is not empty. As an application, we study collusion in auctions in which the bidders’ final utility possibly depends on the winner’s identity. We show that such direct externalities offer a possible explanation for cartels’ structures (not) observed in practice.auctions, Bayesian game, collusion, core, partition function game

Incomplete Procurement Contracting with a Risk-Averse Agent

In a two-stage procurement model, we compare two types of fixed-price contracting schemes, bundling and unbundling. The buyer's choice of scheme involves an intertemporal tradeoff: providing incentives for cost-reducing investment and sharing production-cost risk between the risk-neutral buyer and the risk-averse supplier. The main result shows that unbundling outperforms bundling when both the supplier and the entrant in ex post competitive bidding confront an aggregate risk, and the externality of the supplier's investment on the entrant's production cost is low.