Scandinavian Working Papers in Economics

Working Papers,
Swedish National Road & Transport Research Institute (VTI)

No 2019:4: Empirical analysis of unbalanced bidding on Swedish roads

Johan Nyström () and Daniel Wikström
Additional contact information
Johan Nyström: Swedish National Road & Transport Research Institute (VTI), Postal: Dept. of Transport Economics, P.O. Box 55685, SE-102 15 Stockholm, Sweden
Daniel Wikström: Swedish National Road & Transport Research Institute (VTI), Postal: Dept. of Transport Economics, P.O. Box 55685, SE-102 15 Stockholm, Sweden

Abstract: Based on anecdotal evidence, claims are made that unbalanced bidding is a major problem in the construction industry. This concept refers to a sealed price auction setting with asymmetric information and unit prices, where information rents are extracted. Theoretical literature has shown that it is rational for an informed contractor to skew unit prices. However, empirical studies on the magnitude of the problem are lacking. As the first quantitative study based on European data, it is shown that unbalanced bidding exists, but in small magnitudes. The result is in line with earlier studies from the US.

Keywords: Unbalanced bidding; Asymmetric information; Information rent

JEL-codes: D22; D82; D86; H57; L92

29 pages, August 23, 2019

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