TY  - JOUR
AU  - Bajari,Patrick
AU  - Lewis,Gregory
TI  - Procurement Contracting with Time Incentives: Theory and Evidence
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 14855
PY  - 2009
Y2  - April 2009
UR  - http://www.nber.org/papers/w14855
L1  - http://www.nber.org/papers/w14855.pdf
N1  - Author contact info:
Patrick Bajari
Professor of Economics
University of Minnesota
4-101 Hanson Hall
1925 4th Street South
Minneapolis, MN 55455
Tel: 612/625-8369
Fax: 612/624-0209
E-Mail: bajari@econ.umn.edu

Gregory Lewis
Department of Economics
Harvard University
125 Littauer Center
1805 Cambridge Street
Cambridge, MA 02138
Tel: 617/496-1526
Fax: 617/495-8570
E-Mail: glewis@fas.harvard.edu
AB  - 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%). 
ER  -