The (in) effectiveness of procurement auctions in the public sector

ABSTRACT

This article studies procurement auctions in the public sector using game theoretical tools. The article shows that when participants in an auction are agents with low abilities (low type), as is common in the public sector, they place the same contract request. As a result, the auction mechanism will rarely produce real competition, thus making this mechanism, which limits bidders to those already within the system, ineffective for use in the public sector job market.

KEYWORDS:

• Public sector
• procurement
• auctions
• asymmetry

JEL CLASSIFICATION:

• H80
• H57
• D44
• D82

Disclosure statement

No potential conflict of interest was reported by the authors.

Notes

¹ By Athey (2001) we can see that under our conditions the equilibrium exists if the agents are risk-neutral, risk-averse, and in some cases, risk-loving.