Transparency in Procurement: The design and use of information in trading mechanisms

Lead Research Organisation: University of Edinburgh
Department Name: Sch of Economics

Abstract

This proposal is motivated by the need to reduce the public deficit. One way to do this is by achieving efficiency savings in procurement for large public institutions such as the National Health Service, city councils, or the Ministry of Defence. We propose to contribute towards this goal by attempting to better align the stylised theoretical analysis of tendering - a form of trading mechanism - with the facts on the ground. The focus of our study is the provision and use of information in the tendering process, building on two recent methodological developments: "Information Design" and "Simple Auctions".

Trading mechanisms have been the subject of a great deal of study, especially in the last half a century. More recently, the enormously successful sale of the 3G mobile phone licences by simultaneous auctions - £22.5 billion was raised for the public purse and the band of radio frequency was efficiently assigned - in 2000, provided vivid evidence of how useful this theory can be. The literature on "auctions" is focussed on finding the optimal trading mechanism, which maximizes expected benefits. However, on the one hand, this optimization assumes that the information available to the bidders is predetermined. This is often too strong an assumption as the bid taker may have significant leeway in choosing what information to gather and disclose. On the other hand, the optimization traditionally leaves both the complexity of the mechanism and its use of the information revealed by the bidders unconstrained. This often results in very complicated "optimal" mechanisms, which are hard to implement in practice.

We propose to push out the research frontier by analysing what information, and in which form, is presented to the potential traders and how information revealed by them is used by the designer to determine prices and trades.

The first of these novel ideas is information design: the optimal provision of information to a group of interacting agents by a desiner with a certain objective. By strategically choosing its method for scoring the bids and by seeking out and revealing additional facts that might affect the cost of suppliers, the designer can create interdependence between the agents' information; this can then be exploited through the competitive bidding process, ultimately benefiting the designer's objective.

The second idea is based on the observation that due to the complex objective of the buyer (quality, timing, transparency, sustainability etc. in addition to price) most actual tenders are multi-dimensional: the bids submitted include several different factors besides price. While a pre-announced scoring rule can transform these bids into readily comparable one-dimensional scores, it does not eliminate the complexity of bids and of the bidders' beliefs about the bids of others. For practical reasons, the designer needs to compensate for this innate complication by simplifying the mechanism, resulting in additional restrictions on the set of mechanisms she can choose from. These restrictions imply that families of mechanisms previously discarded as sub-optimal, now become relevant. To capture this scenario, we analyse decentralised mechanisms, where conditional on trading, prices are independent of the bids of competitors. In the context of scoring auctions, this would correspond to a discriminatory "first-score" auction. According to the existing theoretical literature, when the quantity traded is not set beforehand, these auctions are not optimal.

Together, these two approaches make it possible to advance our understanding of issues like simultaneous bidding and realistic mechanisms that deal with interdependent valuations. While doing that we will also pay particular attention not to be hemmed in by the artificial boundary between micro- and macro-economic analyses, so that our insights can be exported to system-wide markets, such as the labour and credit markets.

Planned Impact

Our study of procurement mechanisms will bring the theory closer to the issues that are relevant in practice and it will use innovative methods of addressing the problem of designing the entire process of tendering, from the first call to the signing of the contract(s). We are particularly hopeful about making progress on the judicious design of the information released to the bidders. We expect to find new insights that are sufficiently general so that they can be applied - directly or indirectly - in a wide range of procurement contexts, both public and private. Thus, our results could, in principle, be beneficial to the Ministry of Defence, the NHS, a city council or even to British Telecom and its customers.

The actual result of innovations could be, in the first instance, a cost saving for the entity that sources the inputs as the consequence of more competitive bidding. Additionally, it could also lead to a more efficient match between buyer(s) and suppliers, taking into account the multi-faceted objectives of many buyers. In other words, the average gains to be shared between a buyer and the chosen seller(s) will increase. Such a result should potentially also encourage further, possibly relationship specific, investments from the part of the relevant suppliers, which could feed back and increase the gains from trade yet again.

Our partnership with NHS Scotland will be fundamental in achieving this objective. They will be both a source of practical experience and a test bed for our innovations.

Publications


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B.R. Lester (2016) Competing with asking prices

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Burguet R (2017) Competitive foreclosure in The RAND Journal of Economics

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Burguet, R (2017) Competitive foreclosure



 
Description European Association for Research in Industrial Economics annual conference 
Form Of Engagement Activity A talk or presentation
Part Of Official Scheme? No
Geographic Reach International
Primary Audience Professional Practitioners
Results and Impact I presented "Bidding for input in oligopoly"
Year(s) Of Engagement Activity 2016
URL http://www.earie2016.org/
 
Description Ina Taneva presentation of paper "On Information Design in Games" 
Form Of Engagement Activity A talk or presentation
Part Of Official Scheme? No
Geographic Reach Local
Primary Audience Other audiences
Results and Impact Ina Taneva presented the paper "On Information Design in Games" at Paris School of Economics.
Year(s) Of Engagement Activity 2016
URL http://docs.google.com/viewer?a=v&pid=sites&srcid=ZGVmYXVsdGRvbWFpbnxpdGFuZXZhMTN8Z3g6NDYxNjI2ODA5NT...
 
Description Ina Taneva presentation of paper "On Information Design in Games" 
Form Of Engagement Activity A talk or presentation
Part Of Official Scheme? No
Geographic Reach Local
Primary Audience Other audiences
Results and Impact Ina Taneva presented the paper "On Information Design Games" at the Helsinki Centre of Economic Research.
Year(s) Of Engagement Activity 2016
URL http://docs.google.com/viewer?a=v&pid=sites&srcid=ZGVmYXVsdGRvbWFpbnxpdGFuZXZhMTN8Z3g6NDYxNjI2ODA5NT...
 
Description Ina Taneva presentation of paper "On Information Design in Games" 
Form Of Engagement Activity A talk or presentation
Part Of Official Scheme? No
Geographic Reach Local
Primary Audience Other audiences
Results and Impact Ina Taneva presented the paper "On Information Design in Games" at the University of Oxford.
Year(s) Of Engagement Activity 2016
URL http://docs.google.com/viewer?a=v&pid=sites&srcid=ZGVmYXVsdGRvbWFpbnxpdGFuZXZhMTN8Z3g6NDYxNjI2ODA5NT...
 
Description Ina Taneva presentation of paper "On Information Design in Games" 
Form Of Engagement Activity A talk or presentation
Part Of Official Scheme? No
Geographic Reach International
Primary Audience Other audiences
Results and Impact Ina Taneva presented the paper "On Information Design in Games" at the North American Summer Meeting of the Econometric Society in Philadelphia.
Year(s) Of Engagement Activity 2016
URL http://docs.google.com/viewer?a=v&pid=sites&srcid=ZGVmYXVsdGRvbWFpbnxpdGFuZXZhMTN8Z3g6NDYxNjI2ODA5NT...
 
Description Ina Taneva presentation of paper "On Information Design in Games" 
Form Of Engagement Activity A talk or presentation
Part Of Official Scheme? No
Geographic Reach Local
Primary Audience Other audiences
Results and Impact Ina Taneva presented the paper "On Information Design in Games" at the University of Cambridge.
Year(s) Of Engagement Activity 2016
URL http://docs.google.com/viewer?a=v&pid=sites&srcid=ZGVmYXVsdGRvbWFpbnxpdGFuZXZhMTN8Z3g6NDYxNjI2ODA5NT...
 
Description Ina Taneva presentation of paper "On Information Design in Games" 
Form Of Engagement Activity A talk or presentation
Part Of Official Scheme? No
Geographic Reach International
Primary Audience Other audiences
Results and Impact Ina Taneva presented the paper "On Information Design and Games" at the European Winter Meeting of the Econometric Society in Edinburgh.
Year(s) Of Engagement Activity 2016
URL http://docs.google.com/viewer?a=v&pid=sites&srcid=ZGVmYXVsdGRvbWFpbnxpdGFuZXZhMTN8Z3g6NDYxNjI2ODA5NT...
 
Description Ina Taneva presentation of paper "On Information Design in Games" 
Form Of Engagement Activity A talk or presentation
Part Of Official Scheme? No
Geographic Reach Local
Primary Audience Other audiences
Results and Impact Ina Taneva presented the paper "On Information Design in Games" at the CSIC.
Year(s) Of Engagement Activity 2016
URL http://docs.google.com/viewer?a=v&pid=sites&srcid=ZGVmYXVsdGRvbWFpbnxpdGFuZXZhMTN8Z3g6NDYxNjI2ODA5NT...
 
Description Jornadas de Economia Industrial (conference) 
Form Of Engagement Activity A talk or presentation
Part Of Official Scheme? No
Geographic Reach International
Primary Audience Professional Practitioners
Results and Impact I presented "Bidding for Input in Oligopoly" and discussed "Robust Bidding" by Vitali Gretschko.
Year(s) Of Engagement Activity 2016
URL http://www.uibcongres.org/JEI2016/paginas/pagina_395_5.en.html
 
Description Mini-conference 
Form Of Engagement Activity Participation in an activity, workshop or similar
Part Of Official Scheme? No
Geographic Reach International
Primary Audience Professional Practitioners
Results and Impact I have organised a one-day conference, involving academic economists from across Europe, an academic lawyer and a practitioner from NHS Scotland.
Year(s) Of Engagement Activity 2016
URL https://www.ed.ac.uk/files/atoms/files/conference_programme_pdf.pdf
 
Description Roberto Burguet presentation of "Bidding for input in oligopoly" 
Form Of Engagement Activity A talk or presentation
Part Of Official Scheme? No
Geographic Reach Local
Primary Audience Other audiences
Results and Impact Roberto Burguet gave a presentation at the Paris School of Economics on April 11, 2016, on the paper "Bidding for input in oligopoly".
Year(s) Of Engagement Activity 2016
URL http://research.barcelonagse.eu/research/working-papers/bidding-input-oligopoly
 
Description Roberto Burguet presentation of "Bidding for input in oligopoly" 
Form Of Engagement Activity A talk or presentation
Part Of Official Scheme? No
Geographic Reach Local
Primary Audience Other audiences
Results and Impact Roberto Burguet gave a presentation at the University of Central Florida on January 20, 2017, on the paper "Bidding for input in oligopoly".
Year(s) Of Engagement Activity 2017
URL http://research.barcelonagse.eu/research/working-papers/bidding-input-oligopoly
 
Description Roberto Burguet presentation of "Bidding for input in oligopoly" 
Form Of Engagement Activity A talk or presentation
Part Of Official Scheme? No
Geographic Reach Local
Primary Audience Other audiences
Results and Impact Presenting the paper "Bidding for input in oligopoly" at Queens College, CUNY.
Year(s) Of Engagement Activity 2016
URL http://research.barcelonagse.eu/research/working-papers/bidding-input-oligopoly
 
Description Seminar at UCLA 
Form Of Engagement Activity A talk or presentation
Part Of Official Scheme? No
Geographic Reach International
Primary Audience Professional Practitioners
Results and Impact I presented "Bidding for inputs in oligopoly"
Year(s) Of Engagement Activity 2016
URL http://www.econ.ucla.edu/workshops/workshop.cfm?Workshop=theory
 
Description ZEW Workshop on Market Design 
Form Of Engagement Activity Participation in an activity, workshop or similar
Part Of Official Scheme? No
Geographic Reach International
Primary Audience Professional Practitioners
Results and Impact I presented my paper "Competitive foreclosure" and listened to and discussed 10 other presentations, some by academics some by practitioners.
Year(s) Of Engagement Activity 2017
URL http://www.zew.de/en/veranstaltungen-und-weiterbildung/detail/?tx_t3events_events%5Bevent%5D=2171&tx...
 
Description infromal talk at Stanford 
Form Of Engagement Activity A talk or presentation
Part Of Official Scheme? No
Geographic Reach International
Primary Audience Professional Practitioners
Results and Impact I presented "Bidding for input in oligopoly" at an ad hoc seminar.
Year(s) Of Engagement Activity 2016