Empirical Essays on Procurement and Regulation

Sammanfattning: Essay 1: This paper reports the results of an empirical analysis of the effect of competitive tendering on road operation and maintenance expenses in Sweden. Contrasts of procurement expenses between operation and maintenance contracts let in competitive tendering and similar sole-sourced contracts indicate that competitive tendering reduces procurement expenses by 22-27 percent. Further, there is no evidence that service quality is lower for tendered contracts than for non-tendered contracts.Essay 2: Data on firms’ entries in the Swedish National Road Administration’s procurement auctions of road maintenance are used to estimate what factors determine potential bidders decisions to enter. I find the number of potential bidders to affect the probability for firms to bid. Increasing potential competition tends to decrease the probability of firms participating in the auctions. Other factors affecting entry decisions are firm size, project size, time limit for the submission of bids, and time span of the contracts that are up for tender. Essay 3: (With Per Johansson) This paper presents the results of an empirical analysis of the effect of contract form on the costs of road maintenance in Sweden. Firms’ bidding and production behavior under two different contract forms are compared using bid and cost data from the Swedish National Road Administration’s procurement of road operation and maintenance. Both contracts are variants of a fixed-price contract that differ in the extent of risk imposed on firms, and in the incentives for cost reductions they provide. We find evidence of a considerable moral-hazard effect. Thus, contract form affects behavior and hence expenses.Essay 4: Yardstick competition is a regulatory mechanism, which, according to theory, could induce efficient price regulation in a whole industry. This paper reports results from a laboratory experiment testing this theory. Specifically, the paper reports the results from an investigation of whether yardstick competition can work in situations with few firms. It is found that the theory of yardstick competition predicts behavior well. The average outcome does, however, depend on the number of participating firms: the yardstick competition model predicts behavior better when the number of firms is four that when they are two. Essay 5: I test whether violations of expected utility theory in an Allais Paradox environment are sensitive to payoff size. I find a positive relationship between the fraction of people violating expected utility theory and payoff size.