The Economics of Public-Private Partnerships by Stéphane Saussier & Julie de Brux

Author:Stéphane Saussier & Julie de Brux
Language: eng
Format: epub
Publisher: Springer International Publishing, Cham

Source: Hong and Shum (2002)

3.3 Multidimensional Auctions and Transparency

Whether it is deliberate or not, adverse selection appears as a recurring issue with which public authorities struggle to cope. One of the solutions suggested in the literature consists in taking explicitly into account qualitative dimensions in tender evaluation by setting up a multidimensional auction. Nevertheless, the few empirical studies on the topic emphasize the excesses that arise from this type of auction. Based on data about road and railway concessions in Latin America, Estache, Guasch, Iimi, and Trujillo (2009) thus show that, on the one hand, resorting to multidimensional auctions significantly increases the risk of contract renegotiation and that, on the other hand, this type of auction is often chosen for noneconomic reasons (for instance, in order to use social criteria aiming to reduce unemployment), thereby diverting the auction from its initial objective. In addition, when the criteria for selecting applicants to participate in an auction are multiple but not clearly expressed, the contracting authority enjoys substantial leeway and it is difficult for candidates to anticipate the result of the selection process. To remedy this uncertainty, they may be tempted to corrupt, influence, or lobby the authorities in order to drive them to use their discretionary power in a way that is favorable to them. Additionally, to avoid being at the mercy of the buyer’s opportunism, bidders may seek to collude, thus generating price inflation.

In this regard, the work of Tran (2008) is highly interesting. The author was given access to the unofficial records of an Asian firm, featuring not only the public goods or services supply contracts won by the firm (562 contracts in total over the 1997–2006 period) but also the bribes paid by the firm for each contract (out of the 562 contracts, all but three involve the payment of a bribe). As it happens, over the 1997–2006 period, the rules applied by the government to select private firms changed: prior to 2000, the government was under no obligation to resort to competitive calls for tenders; in 2001, best-value auctions (which correspond to multidimensional auctions) became mandatory, before giving way, in 2004, to best-price auctions. This context allows the author to assess the effect of the government’s various selection procedures on the firm’s propensity to corrupt. The results are surprising: the reform of 2001 did not reduce the bribes paid by the firms; it even increased them (by about nine percentage points of equipment cost) in the case of restricted calls for tenders! In contrast, the 2004 reform did reduce corruption (relative to the situation following the 2001 reform). These results thus highlight the fact that open tenders only reduce corruption when the public authorities’ discretionary leeway is limited.

Ohashi (2009) studies the Japanese public works contracts awarded by the Mie government from March 2001 to March 2004, in which firms must be qualified to take part in a tender. Before mid-2002, the selection of qualified firms was based on criteria of size, as well as on other factors that were explicitly left to the discretion of the buyer.

Download

Copyright Disclaimer:
This site does not store any files on its server. We only index and link to content provided by other sites. Please contact the content providers to delete copyright contents if any and email us, we'll remove relevant links or contents immediately.