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The balance of unbalanced bidding
Swedish National Road and Transport Research Institute, Society, environment and transport, Transport economics, TEK.
2015 (English)In: Procedia Economics and Finance, E-ISSN 2212-5671, Vol. 21, 97-103 p.Article in journal (Refereed) Published
Resource type
Text
Abstract [en]

Based on anecdotal evidence, claims are made that unbalanced bidding is a serious problem in the construction industry. This concept is based on a situation with a contractor being more informed than the client. The asymmetry in information can be used by the contactor to skew unit prices in the ex ante bid and in order to enhance the ex post profit. This is done by increasing the unit price of a quantity that is expected to go up and lower the unit price of a quantity expected to decrease. Research regarding unbalanced bidding has to a large extent focused on models to assists clients in detecting and contractors in optimising the skew. There is also theoretical literature on efficiency losses of unbalanced bidding. The latter models show that it is rational for an informed contractor to raise unit prices on relative underestimated quantities. However, empirical studies that capture the magnitude of the problem are lacking. This paper sets out to fill that void. The analysis is based on a unique dataset of 15 Swedish road investments and 2 795 observations. Data consist of ex ante unit prices and quantities that are related to the final (ex post) quantities. By looking for a positive correlation between these variables and controlling for other affecting variables, the hypothesis of unbalanced bidding can be empirically tested. Along earlier studies on US data, this paper, using more project specific control variables concluded that the effect is even smaller or non-existent.

Place, publisher, year, edition, pages
2015. Vol. 21, 97-103 p.
Keyword [en]
Tender, Contractor, Behaviour, Risk, Contract, Mathematical model
National Category
Economics
Research subject
00 Road: General works, surveys, comprehensive works; 00 Road: General works, surveys, comprehensive works, 02 Road: Economics
Identifiers
URN: urn:nbn:se:vti:diva-10404DOI: 10.1016/S2212-5671(15)00155-0ISI: 000358679700012ISBN: ***************** OAI: oai:DiVA.org:vti-10404DiVA: diva2:926074
Conference
8th Nordic Conference on Construction-Economics-and-Organization (CEO), MAY 28-29, 2015, Tampere, FINLAND
Available from: 2016-05-04 Created: 2016-05-03 Last updated: 2016-05-04Bibliographically approved

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CiteExportLink to record
Permanent link

Direct link
Cite
Citation style
  • apa
  • ieee
  • modern-language-association-8th-edition
  • vancouver
  • Other style
More styles
Language
  • de-DE
  • en-GB
  • en-US
  • fi-FI
  • nn-NO
  • nn-NB
  • sv-SE
  • Other locale
More languages
Output format
  • html
  • text
  • asciidoc
  • rtf