Corruption and individual ethics: insights from a public procurement auction

This article proposes an auction model where two firms compete for obtaining the license for a public project and an auctioneer acting as a public official representing the political power, decides the winner of the contest. Players as firms face a social dilemma in the sense that the higher is the bribe offered, the higher would be the willingness of a pure monetary maximizer public official to give her the license. However, it implies inducing a cost of reducing all players’ payoffs as far as our model includes an endogenous externality, which depends on bribe. All players’ payoffs decrease with the bribe (and increase with higher quality). We find that the presence of bribe aversion in either the officials’ or the firms’ utility function shifts equilibrium towards more pro-social behavior. When the quality and bribe-bid strategy space is discrete, multiple equilibria emerge including more pro-social bids than would be predicted under a continuous strategy space.

Effect of Information about benefits of biotechnology on consumer acceptance of genetically modified food; evidence from experimental auctions in the United States, England, and France

This study investigates the effect of information about potential benefits of biotechnology on consumer acceptance of genetically modified (GM) foods. Consumer willingness to accept compensation to consume a GM food was elicited using an incentive compatible auction mechanism in three US states (California, Florida, and Texas) and in two European countries (England and France). Results indicate that information on environmental benefits, health benefits and benefits to the third world significantly decreased the amount of money consumers demanded to consume GM food; however, the effect of information varied by type of information and location. Consistent with prior research, we find that initial attitudes toward biotechnology have a significant effect on how individuals responded to new information.

Do EU direct payments to beef producers belong in the 'blue box'?

In the Uruguay Round Agreement on Agriculture, so-called 'blue box' support measures were exempted from reduction commitments, provided they were delivered under 'production-limiting' programs. Although classified as 'blue box', the EU system of direct payments (DP) to beef farmers imposes 'claim-limiting' restrictions rather than 'production-limiting' restrictions, allowing farmers to keep additional animals over and above the number upon which they are eligible to claim DP. The present paper provides empirical evidence that EU direct payments capitalise into the market prices of male calves and young steers in Ireland. It is also likely that DP capitalises into the prices of beef cows and heifers. Given this capitalisation process, some farmers can obtain 'capitalised' DP on animals produced over and above the 'claim-limiting' restrictions, by selling these animals through auction markets. Thus, 'capitalised' DP probably encourages production over and above the limiting measures.

The role of undisclosed reserves in English open outcry auctions

This study considers the role that reserve prices may play in residential property auctions. In comparison to much of the previous empirical work, this study has access to undisclosed reserve prices from English auctions. Consistent with theoretical arguments in the auction literature, the results obtained illustrate that whilst higher reserve prices increase the revenue obtained for the seller, they also reduce the probability of sale. The findings also highlight the importance of auction participation, with the number of individual bidders and the number of bids significant in most specifications.

The probability of sale and price premiums in withdrawn auctioned properties

This paper examines the impact of the auction process of residential properties that whilst unsuccessful at auction sold subsequently. The empirical analysis considers both the probability of sale and the premium of the subsequent sale price over the guide price, reserve and opening bid. The findings highlight that the final achieved sale price is influenced by key price variables revealed both prior to and during the auction itself. Factors such as auction participation, the number of individual bidders and the number of bids are significant in a number of the alternative specifications.

Controlling market power of vertically integrated firms in electricity networks: demand response of aggregator agents

This article reports the results of an experiment that examined how demand aggregators can discipline vertically-integrated firms - generator and distributor-retailer holdings-, which have a high share in wholesale electricity market with uniform price double auction (UPDA). We initially develop a treatment where holding members redistribute the profit based on the imposition of supra-competitive prices, in equal proportions (50%-50%). Subsequently, we introduce a vertical disintegration (unbundling) treatment with holding-s information sharing, where profits are distributed according to market outcomes. Finally, a third treatment is performed to introduce two active demand aggregators, with flexible interruptible loads in real time. We found that the introduction of responsive demand aggregators neutralizes the power market and increases market efficiency, even beyond what is achieved through vertical disintegration.

Physiological and behavioral patterns of corruption

We study the behavior and emotional arousal of the participants in an experimental auction, leading to an asymmetric social dilemma involving an auctioneer and two bidders. An antisocial transfer (bribe) which is beneficial for the auctioneer (official) is paid, if promised, by the winner of the auction. Some pro-social behavior on both the auctioneers' and the bidders' sides is observed even in the absence of any punishment mechanism (Baseline, Treatment 0). However, pro-social behavior is adopted by the vast majority of subjects when the loser of the auction can inspect the transaction between the winner and the auctioneer (Inspection, Treatment 1). The inspection and punishment mechanism is such that, if a bribe is (not) revealed, both corrupt agents (the denouncing bidder) lose(s) this period's payoffs. This renders the inspection option unprofitable for the loser and is rarely used, especially towards the end of the session, when pro-social behavior becomes pervasive. Subjects' emotional arousal was obtained through skin conductance responses. Generally speaking, our findings suggest that stronger emotions are associated with decisions deviating from pure monetary reward maximization, rather than with (un)ethical behavior per se. In fact, using response times as a measure of the subject's reflection during the decision-making process, we can associate emotional arousal with the conflict between primary or instinctive and secondary or contemplative motivations and, more specifically, with deviations from the subject's pure monetary interest.

The probability of sale and price premiums in withdrawn auctioned properties

This paper examines the impact of the auction process of residential properties that whilst unsuccessful at auction sold subsequently. The empirical analysis considers both the probability of sale and the premium of the subsequent sale price over the guide price, reserve and opening bid. The findings highlight that the final achieved sale price is influenced by key price variables revealed both prior to and during the auction itself. Factors such as auction participation, the number of individual bidders and the number of bids are significant in a number of the alternative specifications.

The role of undisclosed reserves in English open outcry auctions

This study considers the role that reserve prices may play in residential property auctions. In comparison to much of the previous empirical work, this study has access to undisclosed reserve prices from English auctions. Consistent with theoretical arguments in the auction literature, the results obtained illustrate that whilst higher reserve prices increase the revenue obtained for the seller, they also reduce the probability of sale. The findings also highlight the importance of auction participation, with the number of individual bidders and the number of bids significant in most specifications.

The iso-Score Curve Graph. A new tool for competitive bidding

The present work describes a new tool that helps bidders improve their competitive bidding strategies. This new tool consists of an easy-to-use graphical tool that allows the use of more complex decision analysis tools in the field of Competitive Bidding. The graphic tool described here tries to move away from previous bidding models which attempt to describe the result of an auction or a tender process by means of studying each possible bidder with probability density functions. As an illustration, the tool is applied to three practical cases. Theoretical and practical conclusions on the great potential breadth of application of the tool are also presented.

Estimating future bidding performance of competitor bidders in capped tenders

Research in Bid Tender Forecasting Models (BTFM) has been in progress since the 1950s. None of the developed models were easy-to-use tools for effective use by bidding practitioners because the advanced mathematical apparatus and massive data inputs required. This scenario began to change in 2012 with the development of the Smartbid BTFM, a quite simple model that presents a series of graphs that enables any project manager to study competitors using a relatively short historical tender dataset. However, despite the advantages of this new model, so far, it is still necessary to study all the auction participants as an indivisible group; that is, the original BTFM was not devised for analyzing the behavior of a single bidding competitor or a subgroup of them. The present paper tries to solve that flaw and presents a stand-alone methodology useful for estimating future competitors’ bidding behaviors separately.

Modeling bidding competitiveness and position performance in multi-attribute construction auctions

Currently, multi-attribute auctions are becoming widespread awarding mechanisms for contracts in construction, and in these auctions, criteria other than price are taken into account for ranking bidder proposals. Therefore, being the lowest-price bidder is no longer a guarantee of being awarded, thus increasing the importance of measuring any bidder’s performance when not only the first position (lowest price) matters. Modeling position performance allows a tender manager to calculate the probability curves related to the more likely positions to be occupied by any bidder who enters a competitive auction irrespective of the actual number of future participating bidders. This paper details a practical methodology based on simple statistical calculations for modeling the performance of a single bidder or a group of bidders, constituting a useful resource for analyzing one’s own success while benchmarking potential bidding competitors.

Analysis of the distribution of the number of bidders in construction contract auctions

The number of bidders, N, involved in a construction procurement auction is known to have an important effect on the value of the lowest bid and the mark-up applied by bidders. In practice, for example, it is important for a bidder to have a good estimate of N when bidding for a current contract. One approach, instigated by Friedman in 1956, is to make such an estimate by statistical analysis and modelling. Since then, however, finding a suitable model for N has been an enduring problem for researchers and, despite intensive research activity in the subsequent 30 years, little progress has been made, due principally to the absence of new ideas and perspectives. The debate is resumed by checking old assumptions, providing new evidence relating to concomitant variables and proposing a new model. In doing this and in order to ensure universality, a novel approach is developed and tested by using a unique set of 12 construction tender databases from four continents. This shows the new model provides a significant advancement on previous versions. Several new research questions are also posed and other approaches identified for future study.

Improving the estimation of probability of bidder participation in procurement auctions

Anticipating the number and identity of bidders has significant influence in many theoretical results of the auction itself and bidders' bidding behaviour. This is because when a bidder knows in advance which specific bidders are likely competitors, this knowledge gives a company a head start when setting the bid price. However, despite these competitive implications, most previous studies have focused almost entirely on forecasting the number of bidders and only a few authors have dealt with the identity dimension qualitatively. Using a case study with immediate real-life applications, this paper develops a method for estimating every potential bidder's probability of participating in a future auction as a function of the tender economic size removing the bias caused by the contract size opportunities distribution. This way, a bidder or auctioner will be able to estimate the likelihood of a specific group of key, previously identified bidders in a future tender.