Scoring Contingent Procurement Auctions: Theory and Experimental Evidence

Speaker: Dr Zachary Breig

Affiliaiton: The University of Queensland

Location: Level 6 Boardroom (629), Colin Clark Building (#39), St Lucia Campus

Microsoft Teams: https://teams.microsoft.com/meet/42479477765668?p=Mo75WMOeZIBHDobgN9

Abstract: We theoretically and experimentally study procurement auctions for infrastructure projects under ex-post uncertainty. We compare fixed-price (cash) auctions, scaling (unit-price) auctions, and a novel cost-sharing auction in which bidders compete by requesting a fraction of variable costs to be covered. The experiment varies how bidder heterogeneity enters the environment: through input-quantity risk or through marginal costs. We find that scaling auctions outperform cash auctions when heterogeneity operates through marginal costs but perform poorly when heterogeneity operates through quantity risk. Cost-sharing auctions mitigate the adverse selection inherent in scaling auctions while preserving their insurance properties, leading to improved performance in some environments. Our results provide experimental evidence on the trade-off between risk sharing and adverse selection in procurement design.