(Un)bundling Infrastructure Procurement: Evidence from Water Supply and Sewage Projects
Competition in public procurement auctions in the water supply and sanitation sector is largely limited. This is partly because of high technical complexity and partly because of auction design flaws. The division of lot contracts is an important p...
| Main Authors: | , |
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| Format: | Policy Research Working Paper |
| Language: | English |
| Published: |
2012
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| Subjects: | |
| Online Access: | http://www-wds.worldbank.org/external/default/main?menuPK=64187510&pagePK=64193027&piPK=64187937&theSitePK=523679&menuPK=64187510&searchMenuPK=64187283&siteName=WDS&entityID=000158349_20090304111412 http://hdl.handle.net/10986/4050 |
| Summary: | Competition in public procurement
auctions in the water supply and sanitation sector is
largely limited. This is partly because of high technical
complexity and partly because of auction design flaws. The
division of lot contracts is an important policy choice for
auctioneers to achieve efficiency. In general, there is a
tradeoff between competition in auctions and size of
contracts. Larger works could benefit from economies of
scale and scope, but large contracts might undermine
competition. Using data on public procurement auctions for
water and sewage projects in developing countries, this
paper shows that bidder entry is crucially endogenous,
especially because it is determined by the auctioneer's
bundling and unbundling strategy. If water treatment plant
and distribution network works are bundled in a single lot
package, competition would be significantly reduced, and
this adverse entry effect would in turn raise the public
procurement costs of infrastructure. There is no evidence of
positive scope economies in the bidder cost structure. It is
important to account for the underlying cost structure for
designing efficient auction mechanisms. |
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