Tendering Design When Price and Quality Is Uncertain Theory and Evidence from Public Procurement

Departing from a simple normative theory for the choice between lowest price, highest quality (beauty contest) and more complex scoring rules, we empirically investigate the behavior of local and central authorities. We survey a gross sample of 40 contracting entities about perceived key characteristics of products bought in 651 public procurements and collect data on supplier selection methods for these procurements. We compare actual scoring rules with theoretical norms and analyze what product characteristics make deviation from the norm more or less likely. In addition, a control group of 275 authorities was surveyed about similar but hypothetical procurements. We find that more complex scoring rules are used more often when the authority is uncertain about costs and about delivered quality, in accordance with our hypotheses. However, authority effects are also found to directly and indirectly influence the choice of supplier-selection method, suggesting that tendering design is partially driven by local habits or institutional inertia. JEL code: H57, D44, P16. Key-words: Auctions, Contracting, Habit behavior, Moral hazard, Scoring rules, Supplier selection * Financial support from the Swedish Research Council and the Swedish Competition Authority are gratefully acknowledged. Södertörn University, School of Social Sciences Economics, 141 89 Huddinge, Sweden, e-mail: [email protected]. Corrsponding author. Umeå University, Department of Economics, 901 87 Umeå, Sweden, e-mail: [email protected].