Showing papers on "Bidding published in 1986"
Posted Content•
[...]
TL;DR: Hayek as mentioned in this paper argued that the problem of rational economic order is determined by the fact that the knowledge of the circumstances of which we must make use never exists in concentrated or integrated form but solely as the dispersed bits of incomplete and frequently contradictory knowledge which all the separate individuals possess.
Abstract: ONE PARTY TO AN EXCHANGE often knows something relevant to the transaction that the other party does not know. Such asymmetries of information are pervasive in economic activity: for example, in the relationship between employer and employee when the employee's effort cannot be monitored perfectly; between the stockholders and the manager of a firm; between insurer and insured; between a regulated firm and the regulatory agency; between the supplier and the consumers of a public good; between a socialist firm and the central planner; or (as is the subject of this paper) between buyer and seller when the value of the item is uncertain. Forty years ago, F. A. Hayek criticized theories that purport to describe the price system but start from the assumption that individuals have symmetric information: The peculiar character of the problem of a rational economic order is determined precisely by the fact that the knowledge of the circumstances of which we must make use never exists in concentrated or integrated form but solely as the dispersed bits of incomplete and frequently contradictory knowledge which all the separate individuals possess. The economic problem of society is thus not merely a problem of how to allocate "given" resources-if "given" is taken to mean given to a single mind which deliberately solves the problem set by these "data." It is rather a problem of how to secure the best use of resources known to any of the members of society, for ends whose relative importance only these individuals know. Or, to put it briefly, it is a problem of the utilization of knowledge which is not given to anyone in its totality. (Hayek 1945, p. 519)
2,518 citations
TL;DR: In this article, the authors consider a more general class of auctions, in which bidders name a "menu" of offers for various possible actions (allocations) available to the auctioneer.
Abstract: In many examples of competitive bidding (e.g., government construction contracting) the relevant object is either partially divisible or ill-defined, in contrast to much of the recent theoretical work on auctions. In this paper we consider a more general class of auctions, in which bidders name a "menu" of offers for various possible actions (allocations) available to the auctioneer. We focus upon "first-price" menu auctions under the assumption of complete information, and show that, for an attractive refinement of the set of Nash Equilibria, an efficient action always results. Our model also has application to situations of economic influence, in which interested parties independently attempt to influence a decision-maker's action.
1,319 citations
TL;DR: In this paper, the authors compare bribery to competitive bidding in a government purchasing context and show that there is a fundamental isomorphism between bribery and competitive bidding on the supply side of the transaction.
447 citations
TL;DR: In this paper, the authors model the process of bidding for government contracts in the presence of moral hazard and derive an optimal linear contract for each potential bidder, which trades off giving the chosen agent an incentive to limit costs against stimulating bidding competition and sharing risks.
Abstract: This article models the process of bidding for government contracts in the presence of moral hazard. Several (possibly risk-averse) potential contractors (agents) submit sealed bids, on the basis of which the government (principal) selects one to perform a task. The optimal linear contract is derived. The bidding process induces the potential agents to reveal their relative expected costs. The optimal contract trades off giving the chosen agent an incentive to limit costs against stimulating bidding competition and sharing risks. The optimal contract is never cost-plus, may befixed-price, but is usually an incentive contract. Some prescriptions for government contracting emerge. * When the government offers a contract for a project such as the construction of a road or a warship, it usually calls for bids from interested firms and selects the lowest bidder. There are several informational asymmetries in this process. The government cannot directly observe any bidder's expected production costs, and therefore it does not know which is the efficient firm. Each bidder must determine his bid in ignorance of the expected costs of his rivals. After a bidder has been selected, he is better informed than the government about the vagaries of the particular project; thus, the government is unable to observe how much effort the firm is making to limit production costs. The government must design a contract to address both adverse selection (the government does not know the expected cost of any firm) and moral hazard (the government cannot observe the selected firm's effort to keep its realized production costs low). To complicate matters, if the firms are risk averse, it is in the government's interest to offer a contract in which the government bears some of the risk of unpredictable cost fluctuations. The forms of contract used in practice by governments make the payment to the contractor a linear function of its bid and/or its realized costs. With a fixed-price contract, the payment is simply the firm's bid. With a cost-plus contract, the government agrees to cover completely the costs incurred by the contractor, plus pay a fee that is either fixed in advance or is a proportion of costs. An incentive contract makes the payment depend both on the bid and on realized costs: if realized costs exceed the firm's bid, the firm is responsible for
430 citations
TL;DR: The theory of rational behavior has been used at the most fundamental level of experimental methodology to induce preferences used as parameters in models, such as speculation, bidding, and signaling.
Abstract: The theory of rational behavior has several different uses. First, it is used at the most fundamental level of experimental methodology to induce preferences used as parameters in models. Second, it appears repeatedly in experimentally successful mathematical models of complex phenomena such as speculation, bidding, and signaling. Third, it is used as a tool to generate ex post models of results that are otherwise inexplicable. Finally, it has been used as a tool successfully to design new institutions to solve specific problems. When tested directly, the theory can be rejected. It is retained because neither an alternative theory nor an alternative general principle accomplishes so much.
126 citations
Posted Content•
TL;DR: It is found that budget constraints affect the behavior of bidders and that the trembling-hand perfect equilibrium is generally a good predictor of prices.
Abstract: This article presents an experimental study of bidding behavior in sequential auctions in which there are budget constraints and perfect information. Our experiments test both the properties of such auctions and the predictive power of a refinement of the Nash equilibrium concept. We find that budget constraints affect the behavior of bidders and that the trembling-hand perfect equilibrium is generally a good predictor of prices.(This abstract was borrowed from another version of this item.)
103 citations
TL;DR: It is found that in practice, supposedly competitive bidding systems often degenerate into administratively complicated negotiations between the state and private monopolies, which results in higher costs and lower quality of services.
Abstract: Over the past two decades states have significantly increased their use of competitive bidding to purchase health and social services from private agencies. Competitive contracting is thought to facilitate program administration, to reduce costs, and to increase the quality of delivered services. We evaluate these claims in light of Massachusetts' experience with competitive contracting for mental health care. We find that few of the expected benefits are achieved. In practice, supposedly competitive bidding systems often degenerate into administratively complicated negotiations between the state and private monopolies. This results in higher costs and lower quality of services. In light of this negative assessment, three strategies for reform are proposed and evaluate.
83 citations
TL;DR: In this paper, the authors developed a model to analyze formally the trade-off between the objectives of risk sharing and efficient contractor selection in a competitive procurement, where a buyer seeks to institute a bidding and contracting procedure which selects the most efficient firm to undertake the contract while offering terms that promote risk sharing between buyer and contractor.
Abstract: In a competitive procurement, a buyer seeks to institute a bidding and contracting procedure which selects the most efficient firm to undertake the contract while offering terms that promote risk sharing between buyer and contractor. This paper develops a model to analyze formally the trade-off between the objectives of risk sharing and efficient contractor selection.
78 citations
TL;DR: Would a seller prefer to sell multiple objects through sequential or simultaneous auctions?
Abstract: Would a seller prefer to sell multiple objects through sequential or simultaneous auctions? Sequential auctions with bids announced between sales seem preferable because the bids may convey informa...
62 citations
Posted Content•
TL;DR: In this paper, the interaction between bidding for procurement programs and fractional buys is investigated from the standpoint of a cost-minimizing procuring agent, and it is shown that underimperfect competition, a multiple-source purchase is generally preferred to a single-source contract.
Abstract: This paper investigates the interaction between bidding for procurementprograms and fractional buys. This problem is analyzed from the standpoint of a cost-minimizing procuring agent. It is shown that underimperfect competition, a multiple-source purchase is generally preferred to a single-source contract. Similarly, the author demonstrates that a (strictly) intermediate cost sharing arrangement,i.e., an incentive contract, dominates either the cost-plus or the firm-fixed price arrangements. Copyright 1986 by American Economic Association.
TL;DR: In this paper, the authors consider an auction or fair division game where every bidder knows his true value of the single object but is only incompletely informed about the true values of his competitors.
Abstract: Consider an auction or fair division game where every bidder knows his true value of the single object but is only incompletely informed about the true values of his competitors. By imposing the axiom of envy freeness with respect to stated preferences the set of pricing rules is restricted to the prices between the highest and second highest bid. Whereas for auctions one also can satisfy incentive compatibility, the same is not true for fair division games. We analyse and compare the different pricing rules, partly incentive compatible and partly not, by deriving the optimal bidding strategies. By comparing the payoff expectations induced by the various pricing rules we can prove directly a special equivalence statement saying that expected payoffs do not depend on the pricing rule. It is interesting that in fair division games equivalence of pricing rules is only valid if information is sufficiently incomplete.
TL;DR: In this article, a dynamic iterative survey mechanism may well need to be employed in the design of contingent valuation survey instruments in order to improve the accuracy of responses, and due to the current inaccuracy of hedonic and travel cost approaches for valuing public goods, the least cost method for establishing anchor or true individual values for testing alternative survey instruments is to use laboratory experiments.
Abstract: We have implicitly argued in the last section that a dynamic iterative survey mechanism may well need to be employed in the design of contingent valuation survey instruments in order to improve the accuracy of responses. Furthermore, due to the current inaccuracy of hedonic and travel cost approaches for valuing public goods, the least cost method, in our view, for establishing anchor or true individual values for testing alternative survey instruments is to use laboratory experiments. The objective of these experiments should be the development of the most simple survey design which gives accurate responses subject to the budget of the investigator. Is a complex iterative voting procedure required? How fast will such a procedure converge to ‘true’ values? What is the effect on incentives of relaxing the unanimity voting feature for large groups? All of these operational questions can at least qualitatively be answered in an experimental laboratory setting. This approach would allow rapid resolution of a number of problems which have developed in the application of the contingent valuation approach. First, the large difference between economic measures of willingness to accept and willingness to pay may be greatly reduced by application of demand revealing mechanisms. Any remaining difference between the two measures might then be properly attributed to psychological, ethical or other complicating factors. Second, the consistently large differences between the iterative bidding and payment card measures of willingness to pay suggests that one of the procedures might be more accurate than the other. Laboratory experimentation should be able to quickly identify the superior procedure. Third, contingent valuation studies which involve uncertainty have not proven successful. In a study of the willingness to pay to contain toxic wastes undertaken by Cummings and reported on in Schulze et al. (1983) nearly half of the respondents were willing to contribute the same amount of money for 50 percent odds of containment as for 100 percent odds of containment. Does this result indicate a failure of the expected utility hypothesis or a failure to perceive or comprehend probabilities by a large sub-sample of individuals? Or, is the survey at fault? Again the least cost approach for resolving these questions is likely to be a laboratory setting. Finally, individuals may have severe perception problems with the timing and method of payment used to collect bids for public goods. Schulze et al. (1983) report on a large divergence in the value of preserving visibility for visitors at the Grand Canyon using monthly payments in the form of higher electric utility bills to collect payment as compared to collecting higher daily entrance fees. Note that the first method hypothetically collects a regular payment on a monthly basis while the second hypothetically collects payments only if respondents visit the Grand Canyon. The first method implied an overall larger total benefit of preserving visibility than the second. Again, laboratory experiments could readily determine the relative accuracy of alternative temporal payment mechanisms.
TL;DR: In this article, the authors describe a bidding model that incorporates three important characteristics of the bidding process that operates in these markets: the prices of houses are established through sequential bidding, so that sellers do not necessarily accept the highest bids that might be made for their houses; ignorance of the market may lead potential buyers to make bids that are either higher or lower than the ones they would make if they had complete information; and the distribution of bids for a house is truncated at the seller's asking price.
TL;DR: In this article, the authors present and test an equilibrium pricing model for a public sector audit engagement and evaluate the model's predictive accuracy by comparing its predictions to the actual bids and to the predictions of an OLS regression model.
01 Dec 1986
TL;DR: In this article, the authors discuss some of the objectives of privatization and issues that are central to the debate on the wisdom of privatization, including the relationship between asset ownership and the competitive environment; the spreading ownership of productive assets; the role of regulation ("protective" privatization); and alternatives to asset sale such as competitive bidding to contract out a service.
Abstract: This paper discusses some of the objectives of privatization and issues that are central to the debate on the wisdom of privatization. These issues include: the relationship between asset ownership and the competitive environment; the spreading ownership of productive assets; the role of regulation ("protective" privatization); and alternatives to asset sale such as competitive bidding to contract out a service. Copyright 1986 by Blackwell Publishers Ltd/University of Adelaide and Flinders University of South Australia
Journal Article•
TL;DR: In this paper, the development of a model for long-range forecasting of highway construction cost is described, based on a statistical analysis of data gathered from Florida Department of Transportation projects around the state of Florida from 1968 to 1984.
Abstract: In recent years there has been a substantial increase in the number and complexity of projects in the highway construction industry. The complexity of these projects is one of the main reasons it takes so much time from inception to completion of a project. Those involved in decision making and budgeting need "tools" to help evaluate future costs. The literature survey conducted during this study has shown that the use of existing economic models is inadequate because of the unique factors that influence the highway industry. The development of a model for long-range forecasting of highway construction cost is described. This model is based on a statistical analysis of data gathered from Florida Department of Transportation projects around the state of Florida from 1968 to 1984. The research revealed that, in addition to the inflationary changes in the cost of basic elements (labor, materials, equipment), there are other factors that affect total cost. One of those factors, the bidding volume, was analyzed and incorporated into the model. Although this model was developed for a specific sponsor, it is based on general principles that can be adapted to other users.
Dissertation•
01 Sep 1986
TL;DR: In this paper, a model is developed for the entire decision environment for a construction company, where three outcome criteria consisting of people, money and property are required to be assessed, the values of the outcome criteria being determined by four project characteristics.
Abstract: The thesis considers one of the central problems of corporate planning for a construction company, the project selection and bidding decision, and a model is developed for the entire decision environment
The nature of decision systems is examined and considered to consist of the identification, evaluation and selection from a range of options Corporate decisions are discussed leading to the conclusion that a suitable model is needed
A basic model is proposed in which three outcome criteria consisting of people, money and property are required to be assessed, the values of the outcome criteria being determined by four project characteristics Some approaches to the solution of multiple criteria problems are examined
The implications of time are next considered and the use of Gottinger's sequential machines examined as a means of modelling the complexities involved Non-deterministic aspects of the problem are introduced which, together with dynamical considerations, suggest a model of intermediate complexity to be appropriate
The final chapters of the thesis concentrate on some ways in which the computational burden associated with the model can be reduced The role of decision strategies is examined as a means of identifying the most suitable options The suitability of probabilistic approaches to modelling non-deterministic aspects is investigated and an empirical analysis of three sets of bidding data is made to examine some possible simplifying assumptions
TL;DR: In this paper, a portfolio choice model is formulated which focuses on the possibility of inflation hedging motives in housing demand in the 1970s and an asset demand equation is used to estimate the capitalization of inflation expectations into house prices through tax, mortgage and hedging effects.
Abstract: A bstract-A portfolio choice model is formulated which focuses on the possibility of inflation hedging motives in housing demand in the 1970s. An asset demand equation is used to estimate the capitalization of inflation expectations into house prices through tax, mortgage, and hedging effects. The empirical results indicate that, even after accounting for tax and mortgage effects, the hedging motive was significant in bidding up house prices. One implication is that the tax effects of inflation may have been overstated in previous research that ignored inflation risk.
TL;DR: In this paper, an empirical test of the currently accepted bidding models in two regions of differing tract value uncertainty is presented, showing that the more bidders that bid on a particular parcel in the face of great uncertainty, the lower the bid levels of individual firms that participate given all else is constant.
Abstract: This paper presents an empirical test of the major hypothesis of the currently-accepted bidding models in two regions of differing tract value uncertainty. The most significant result is an empirical verification that the more bidders that bid on a particular parcel in the face of great uncertainty, the lower the bid levels of individual firms that participate given all else is constant. No such relationship was observed, however, in the sale where there was previous bidding experience and prior ownership of closely related tracks. Prior models have not been able to identify the inverse relationship because of a bias that occurs when only positive bids are employed in these models and the use of data where previous experience reduces uncertainty. In the analysis of the competitive bidding situation, we use a two-stage procedure which adjusts for this "selection bias" by allowing for the incorporation of information from the dichotomous bid/no-bid decision in the modeling of bid level.
TL;DR: In this article, the TIC bidding problem is formulated as a nonlinear integer program and a linearization which is embedded in a special purpose integer linear branch and bound algorithm is presented.
Abstract: Over $47 billion of tax exempt debt issues were sold to the public in 1982. A portion of this total was offered to municipal bond underwriters under a competitive bidding system using the criterion of minimum true interest cost (internal rate of return). The TIC bidding problem may be formulated as a nonlinear integer program. We develop a linearization which is embedded in a special purpose integer linear branch and bound algorithm. Computational results for several actual bidding problems are presented.
TL;DR: The purpose of this brief comment is to provide some empirical data to support the relevance of the theoretical arguments put forward in Donald Hausch's paper Hhausch, Donald B. 1986.
Abstract: The purpose of this brief comment is to provide some empirical data to support the relevance of the theoretical arguments put forward in Donald Hausch's paper Hausch, Donald B. 1986. Multi-object auctions: sequential vs. simultaneous sales. Management Sci.32.. There are two different kinds of evidence. One is the results of a small "natural experiment" that occurred in 1965. The other is the first-hand report by one of us of the considerations taken into account in the design of outer continental shelf OCS oil auctions.
TL;DR: In this paper, the authors provide an example of a means of linking mathematical theory, laboratory experiments and standard empirical work, and report on a preliminary version of such a test for off-shore oil bidding data.
Abstract: This paper provides an example of a means of linking mathematical theory, laboratory experiments and standard empirical work. Theory, by necessity, abstracts from the naturally-occurring world and experiments designed to test theory must incorporate the same abstractions. On the other hand, empirical tests are generally performed on naturallyoccurring data, which may not reflect those same abstractions. Given this possible divergence, naturally-occurring data should be tested for consistency with theoretical assumptions, whenever possible. On the basis of standard symmetric bidding theory, this paper reports on a preliminary version of such a test for off-shore oil bidding data.
TL;DR: In this article, the authors present a technique for estimating the parameters of that distribution based on order statistics, and describe how a posted list price might affect the sale price data used in this estimation technique, and how the technique can be modified to deal with this type of censored data.
Abstract: In order to determine an optimum sales strategy for a property it is useful to estimate the distribution of bids which will be received for the property. The more accurate the estimate of the distribution, the higher the expected return will be from following the optimal strategy. This paper presents a technique for estimating the parameters of that distribution based on order statistics. It also describes how a posted list price might affect the sale price data used in this estimation technique, and how the technique can be modified to deal with this type of censored data.
31 Mar 1986
TL;DR: It is concluded that the key to successful expert system development lies in the organizational environment in which the application is undertaken and development should be client led and problem oriented with clearly defined end users.
Abstract: : The authors have investigated knowledge acquisition both by developing eight systems themselves and by involvement in a survey of 70 systems developed by others They conclude that the key to successful expert system development lies in the organizational environment in which the application is undertaken Hence development should be client led and problem oriented with clearly defined end users Simple applications are more likely to be successful Several knowledge elicitation techniques will be required for any given application The authors have investigated unstructured and structured interviews, case histories, rule induction, observation, paper models (intermediate representations), iterative prototyping, use of published material and the problems of eliciting uncertain knowledge A general approach to knowledge elicitation is suggested Systems developed by the authors and described in the report include BREDAMP (building dampness diagnosis), CRANES (tower crane selection), BID/NO BID (bidding decision), MATSEL (boiler tube steel selection), RRES (aeroengine fault diagnosis) and GECES (alternator out-of-balance correction)
TL;DR: The goals in developing the prototype of the Contract Support Services Consultant were to capture the knowledge and experience of experts and make them available to nonexperts in a convenient, consistent way, and the result is a system that improves the accuracy, consistency, and timeliness of the estimates and bids.
Abstract: This paper discusses the genesis, development, and testing of a knowledge-based expert system called the Contract Support Services Consultant. This system aids in the process of estimating, bidding, and preparing agreements for certain services required for the rearrangement, relocation, discontinuance, and reinstallation of IBM equipment. The goals in developing the prototype of the Contract Support Services Consultant were to capture the knowledge and experience of experts and make them available to nonexperts in a convenient, consistent way. The result is a system that improves the accuracy, consistency, and timeliness of the estimates and bids.
TL;DR: The prospective payment system has many benefits and risks for the hospital industry and a quality-enhancing bidding process can be used to redistribute any unfair windfall profits, and foster quality care, effectiveness, efficiency, and productivity.
Abstract: The prospective payment system has many benefits and risks for the hospital industry. A quality-enhancing bidding process can be used to redistribute any unfair windfall profits, and foster quality care, effectiveness, efficiency, and productivity.
TL;DR: In this article, the authors compare the assumptions and predictions of common values auction theory with OCS leasing data and find that the general assumption of continuous bid density functions is not supported by the empirical evidence.
Journal Article•
TL;DR: In this article, the authors review and comment on the literature on the economic efficiency of takeover-bid legislation and of permissible defensive tactics taken by the management of takeover target corporations and conclude that the important outstanding issues are: i) the degree to which takeover rules interfere with the deterrence of management inefficiency, and ii) the cost of allocating assets to their most highly valued uses through competitive bidding as opposed to the likelihood and cost of retransfers of assets after takeovers without competitive bidding.
Abstract: In recent years a number of scholars have debated the economic efficiency of takeover-bid legislation and of permissible defensive tactics taken by the management of takeover target corporations. This article reviews and comments on this literature and draws attention to a number of empirical questions raised by the debate. It concludes that the important outstanding issues are: i) the degree to which takeover rules interfere with the deterrence of management inefficiency, and ii) the cost of allocating assets to their most highly-valued uses through competitive bidding as opposed to the likelihood and cost of retransfers of assets after takeovers without competitive bidding. This article is available in Osgoode Hall Law Journal: http://digitalcommons.osgoode.yorku.ca/ohlj/vol24/iss4/7 ECONOMIC EFFICIENCY AND TAKEOVER BID REGULATION
Posted Content•
TL;DR: In this article, the authors studied the role of the medium of exchange in preempting competition in a setting in which there is asymmetric information between a target and competing bidders.
Abstract: The medium of exchange in acquisitions is studied in a model where (i) bidders' offers bring forth potential competition and (ii) targets and bidders are asymmetrically informed. In equilibrium, both securities and cash offers are observed. Securities have the advantage of inducing target management to make an efficient accept/reject decision. Cash has the advantage of serving, in equilibrium, to "preempt" competition by signaling a high valuation for the target. Implications concerning the medium of exchange of an offer, the probability of acceptance, the probability of competing bids, expected profits, and the costs of bidders are derived. IN STRUCTURING ITS OFFER to acquire a firm, an acquirer must, among other things, determine the medium of exchange of the offer. That is, an acquirer must choose whether the payment will be in the form of cash, debt, equity, or some combination. With symmetric information, no transactions costs, and no taxes, the medium of exchange is irrelevant. This is not the case, though, if these assumptions are not satisfied. This paper studies the role of the medium of exchange in acquisitions in a setting in which there is asymmetric information between a target and competing bidders. The focus of the paper is on the role of the medium of exchange in preempting competition. Consider a bidder that studies the profitability of an acquisition. If it makes a bid, other potential bidders will observe the bid, learn of the potentially profitable acquisition, and perhaps compete for it. A preemptive bid may be a way to eliminate this competition. Suppose a competing bidder's expected payoff is decreasing in the initial bidder's valuation for the target. When bidding against an initial bidder with a high valuation, a competitor may face a low probability of winning the bidding and a low expected payoff given that it does win. In this case, if the initial bidder could signal a sufficiently high valuation, it could deter the competition. As Fishman [7] and P'ng [18] have shown, a high bid can signal a high valuation and thus serve to preempt competition. Both studies, however, deal only with cash offers. (See also Giammarino and Heinkel [9] and Khanna [14].) A key difference between a cash offer and a (risky) securities offer is that a security's value depends on the profitability of the acquisition, while the value of cash does not. In the studies cited above, bidders, but not the target, have private