Three Essays on Procurement Auctions

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Arsenault, Alex
Economics , Auctions , Procurement , Corruption
This thesis is an empirical study of procurement auctions. First, I explore how varying the timing of a sequence of auctions affects both bidder behaviour and the welfare of procurers and bidders. We develop a structural auction model with endogenous participation in which bidding may be simultaneous or sequential. Bidders perceive auctioned objects as either complements or substitutes. We apply this model to auctions for roof-maintenance projects in Montreal. We show that complementarities account for as much as 17\% of the total size of contract combinations. We develop an algorithm to search a schedule of auctions and show that the total cost of projects can be reduced by over 8\%. I also study the effect of corruption on outcomes of procurement auctions. I define corruption as any illegal behaviour used by firms to lower their costs. In Quebec, firms that are found to be involved in corruption are not allowed to bid in procurement auctions for a period of five years and added to a list. I consider the outcome of auctions in markets where firms on that list were active. Bids by corrupt firms are lower than bids by clean firms and corrupt firms are more likely to win auctions in which they participate. The behaviour of clean firms adjust as they interact with corrupt firms. Costs of corrupt firms recovered through structural estimation are shifted down by around 4.1\% relative to clean firms. Only half of this advantage is reflected in their bids. Finally, I run a case study of corruption in procurement auctions. The English Montreal School Board (EMSB) was placed under trusteeship by the government of Quebec in November 2019, following underreporting of contracts that the EMSB was legally required to report. Using public data, I confirm underreporting in the period that precedes the trusteeship and I find that the value of contracts reported by the EMSB after the trusteeship is in line with that of other school boards. Using a Difference-in-difference approach, I confirm that the underreporting disappears as the trusteeship begins. Simulations show damages of around \$16 millions between 2009 and 2015.
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