Scaling Auctions as Insurance: A Case Study in Infrastructure Procurement
Most U.S. government spending on highways and bridges involves a bidding process where private construction firms submit price bids for each material needed. Researchers studied bridge maintenance projects in Massachusetts and found that firms bid strategically to minimize risk, especially on uncertain items. They estimated the level of uncertainty, bidder costs, and risk aversion. Through simulations, they determined that this approach saves money compared to other methods and offers insights for policymakers considering different auction designs.