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Price Adjustment Policies in Procurement Contracting: An Analysis of Bidding Behavior
Author(s) -
Kosmopoulou Georgia,
Zhou Xueqi
Publication year - 2014
Publication title -
the journal of industrial economics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.93
H-Index - 77
eISSN - 1467-6451
pISSN - 0022-1821
DOI - 10.1111/joie.12036
Subject(s) - bidding , procurement , government procurement , regression discontinuity design , economics , estimation , microeconomics , nonparametric statistics , yield (engineering) , econometrics , business , government (linguistics) , industrial organization , marketing , statistics , mathematics , materials science , management , metallurgy , linguistics , philosophy
The fluctuations in fuel prices over the past decade led a number of government agencies to introduce price adjustment clauses in procurement contracting. Those clauses were primarily designed to reduce contractors’ uncertainty without considering the impact of such initiatives on bidding and the budget. We analyze a newly constructed, detailed panel of observations on bids for construction contracts and compare bidding behavior across periods and projects, and across items within projects. Estimates from a difference‐in‐differences approach, indicate that bidding becomes more aggressive and less dispersed after the implementation of this policy. The difference is more pronounced when we consider itemized bids than overall project bids. Alternative techniques of regression discontinuity and nonparametric estimation are applied and yield consistent results.