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Too much balance in unbalanced bidding
Swedish National Road and Transport Research Institute, Society, environment and transport, Transport economics Stockholm.
Swedish National Road and Transport Research Institute, Society, environment and transport, Transport economics Stockholm.
2013 (English)In: Studies in Microeconomics, ISSN 2321-0222, Vol. 1, no 1, 23-35 p.Article in journal (Refereed) Published
Abstract [en]

This article adds to the theoretical base of unbalanced bidding in auction theory. The importance of this concept is justified by being a decisive feature in the make-or-buy decision of a client who cannot rely on repeated interaction, often the case in public procurement, for example. Earlier theoretical models on unbalanced bidding often predict corner solutions, that is, zero bids for unit prices of expected overestimated quantities. However, anecdotal evidence indicates a lack of zero bids in the actual contracts. The article offers a possible explanation for this anomaly by focusing on the risk-aversion of the contractor. Using a simple model, it shows that a contractor with superior information may exploit this in the bidding process to increase her expected revenue. This increases risk exposure. A risk-averse contractor will typically avoid a corner solution to reach an optimal balance between risk and expected return.

Place, publisher, year, edition, pages
Sage Publications, 2013. Vol. 1, no 1, 23-35 p.
Keyword [en]
Tender, Contractor, Behaviour, Risk, Contract, Mathematical model
National Category
Economics
Research subject
Road: General works, surveys, comprehensive works, Road: Economics
Identifiers
URN: urn:nbn:se:vti:diva-329DOI: 10.1177/2321022213488845OAI: oai:DiVA.org:vti-329DiVA: diva2:666971
Funder
TrenOp, Transport Research Environment with Novel Perspectives, 92410
Available from: 2013-11-25 Created: 2013-11-25 Last updated: 2014-08-28Bibliographically approved

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CiteExportLink to record
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Citation style
  • apa
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  • vancouver
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Language
  • de-DE
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  • fi-FI
  • nn-NO
  • nn-NB
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  • Other locale
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Output format
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  • text
  • asciidoc
  • rtf