A presentation by Michal Šoltés (Faculty of Law, Charles University, Prague). This event is part of the Political Economy Lunch Seminar (PELS).
Public procurement accounts for about 12% of GDP in OECD countries. Public procurement contracts are incomplete, which leads to frequent ex-post renegotiation. In this paper, we study how allowing renegotiation affects the bidding behaviour of firms and the final prices of public procurement contracts. We develop a theoretical model that yields predictions about firms' behaviour under different renegotiation policy regimes. Subsequently, we test the predictions empirically using data from the Czech Republic. We show that easier renegotiation leads to more aggressive bidding strategies, i.e., winning bids decline. However, the final prices of contracts after renegotiation remain unchanged. Finally, firms with a high propensity for renegotiation tend to win more contracts if renegotiation is possible.
