KDI Journal of Economic Policy

Korea Development Institute (한국개발연구원)
권호 표지
DOI QR코드

DOI QR Code

An Unsuccessful Reform on the Local Public Contracts Law in Korea

  • Received : 2020.12.10
  • Published : 2021.08.31
Download PDF
⟨ Previous Next ⟩

Abstract

In Korea, local governments and local agencies had to apply a version of the first price auction augmented by an ex-post screening process when they procure construction contracts. However, this first price auction had been criticized because it was felt that too much price competition could lead to poor ex-post performance in construction. In response, the existing auction method was recently replaced by a version of the average price auction with a similar screening process. This paper empirically examines the effectiveness of this reform and finds that the replacement only increases the fiscal burden of local governmental bodies without making any improvement in the ex-post performance.

Keywords

References

  1. Albano, G. L., M. Bianchi, and G. Spagnolo. 2006. "Bid Average Method in Procurement," Rivista di Politica Economica, 96(1): 41-62.
  2. Bajari, Patrick, Stephanie Houghton, and Steven Tadelis. 2014. "Bidding for Incomplete Contracts: An Empirical Analysis of Adaptation Costs," American Economic Review, 104(4): 1288-1319. https://doi.org/10.1257/aer.104.4.1288
  3. Conley, Timothy and Francesco Decarolis. 2016. "Detecting Bidders' Groups in Collusive Auctions," American Economic Journal: Microeconomics, 8(2): 1-38.
  4. Decarolis, Francesco. 2014. "Awarding Price, Contract Performance, and Bids Screening: Evidence from Procurement Auctions," American Economic Journal: Applied Economics, 6(1): 108-132. https://doi.org/10.1257/app.6.1.108
  5. Decarolis, Francesco. 2018. "Comparing Public Procurement Auctions," International Economic Review, 59(2): 391-419. https://doi.org/10.1111/iere.12274
  6. Kang, Heewoo and Bitmaro Kim. 2017. A Study on Reforming Public Procurement System in Korea, Korea Institute of Public Finance (in Korean).
  7. Kim, Jungwook. 2012. Analysis on Determinants of Winner in Public Procurement Auction, Policy Study 2012-08, KDI (in Korean).
  8. Lewis, Gregory and Patrick Bajari. 2011a. "Procurement Contracting with Time Incentives: Theory and Evidence," Quarterly Journal of Economics, 126(3): 1173-1211. https://doi.org/10.1093/qje/qjr026
  9. Lewis, Gregory and Patrick Bajari. 2011b. "Moral Hazard, Incentive Contracts and Risk: Evidence from Procurement," NBER Working Paper Series.
  10. McAfee, R. Preston and John McMillan. 1986. "Bidding for Contracts: A Principal-Agent Analysis," Rand Journal of Economics, 17(3): 326-338. https://doi.org/10.2307/2555714
  11. MOEF (Ministry of Economy and Finance). 2015. "The First Price Auction Will Be Replaced by The Comprehensive Examination Method Since 2016," Press Release, 29, Dec (in Korean).
  12. PPS (Public Procurement Service). 2019. "Some Changes in the Comprehensive Examination Method Will Lead to a Rise in the Profitability in the Construction Industry," Press Release, 29, Oct (in Korean).
  13. Spulber, Daniel. 1990. "Auctions and Contract Enforcement," Journal of Law, Economics, and Organizations, 6(2): 325-344.
  14. Sweet, Justin. 1994. "Legal Aspects of Architecture, Engineering and the Construction Process," 5th ed., West Publishing Company.