Comparing public procurement auctions

This paper contrasts two auction formats often used in public procurement: first price auctions with ex-post screening of bid responsiveness and average bid auctions, in which the bidder closest to the average bid wins. In equilibrium, their ranking is ambiguous in terms of revenues, but the average bid auction is typically less efficient. Using a dataset of Italian public procurement auctions run alternately under the two formats, a structural model of bidding is estimated for the subsample of first price auctions. Lower bound estimates of the efficiency loss under the counterfactual average bid auctions range between 11 and 41 percent.