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Aid and competition in procurement auctions: a case of highway projects
Author(s) -
Iimi Atsushi
Publication year - 2007
Publication title -
journal of international development
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.533
H-Index - 66
eISSN - 1099-1328
pISSN - 0954-1748
DOI - 10.1002/jid.1379
Subject(s) - common value auction , procurement , competition (biology) , business , industrial organization , china , economics , unique bid auction , corporate governance , microeconomics , finance , auction theory , marketing , ecology , political science , law , biology
Auctions have been recognised as an important tool for improving economic efficiency. Aid‐related procurement systems are no exception to this. Strengthening competition at procurement auctions lowers contract prices and mitigates the heavy indebtedness of developing countries. Auctions are also instrumental in developing local business and fostering good governance. Using data on procurement auctions for Asian Development Bank‐assisted highway projects in China, the equilibrium bid function is estimated. The data indicate that two factors may exert different influences on the equilibrium bid. A common expectation that economies of scale in road construction could lower the average cost of constructing relatively long roads encourages firms to bid aggressively, independently of the degree of auction competition. On the other hand, a pro‐competitive effect would be observed only as the number of bidders exceeds eight. Copyright © 2007 John Wiley & Sons, Ltd.