NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

Procurement Contracting with Time Incentives: Theory and Evidence

Patrick Bajari, Gregory Lewis

NBER Working Paper No. 14855
Issued in April 2009
NBER Program(s):   IO

In public sector procurement, social welfare often depends on the time taken to complete the contract. A leading example is highway construction, where slow completion times inflict a negative externality on commuters. Recently, highway departments have introduced innovative contracting methods based on scoring auctions that give contractors explicit time incentives. We characterize equilibrium bidding and efficient design of these contracts. We then gather an extensive data set of highway repair projects awarded by the California Department of Transportation between 2003 and 2008 that includes both innovative and standard contracts. Comparing similar con- tracts in which the innovative design was and was not used, we show that the welfare gains to commuters from quicker completion substantially exceeded the increase in the winning bid. Having argued that the current policy is effective, we then develop a structural econometric model that endogenizes participation and bidding to examine counterfactual policies. Our estimates suggest that while the current policy raised com- muter surplus relative to the contractor's costs by $359M (6.8% of the total contract value), the optimal policy would raise it by $1.52B (29%).

download in pdf format
   (297 K)

email paper

This paper is available as PDF (297 K) or via email.

This paper was revised on December 2, 2011

Machine-readable bibliographic record - MARC, RIS, BibTeX

Document Object Identifier (DOI): 10.3386/w14855

Published: Gregory Lewis & Patrick Bajari, 2011. "Procurement Contracting With Time Incentives: Theory and Evidence," The Quarterly Journal of Economics, Oxford University Press, vol. 126(3), pages 1173-1211.

Users who downloaded this paper also downloaded these:
Bajari, Houghton, and Tadelis w12051 Bidding for Incomplete Contracts: An Empirical Analysis
Lewis and Bajari w17647 Moral Hazard, Incentive Contracts and Risk: Evidence from Procurement
Bajari, McMillan, and Tadelis w9757 Auctions Versus Negotiations in Procurement: An Empirical Analysis
Ashenfelter, Ashmore, and Filer w5916 Contract Form and Procurement Costs: The Impact of Compulsory Multiple Contractor Laws in Construction
Athey and Levin w7185 Information and Competition in U.S. Forest Service Timber Auctions
 
Publications
Activities
Meetings
NBER Videos
Data
People
About

Support
National Bureau of Economic Research, 1050 Massachusetts Ave., Cambridge, MA 02138; 617-868-3900; email: info@nber.org

Contact Us