Market outcomes depend on the quality of information available to its participants. We measure th... more Market outcomes depend on the quality of information available to its participants. We measure the effect of information disclosure on market outcomes using a large-scale field experiment that randomly discloses information about quality in wholesale automobile auctions. As the theoretical literature predicts, information disclosure increases expected revenues. However, in contrast with conventional theories, the biggest gains are for the best-and worst-quality cars. We argue that information disclosure causes better matching of heterogeneous buyers to different quality cars. This novel explanation both rationalizes patterns in our data and is confirmed by additional tests. Our findings have implications for the design of other markets, including online consumer auctions, procurement auctions, and labor markets. JEL classifications C93, D44, D82, L15 * We are grateful to the management and employees of the firm that provided the data and worked cooperatively with us to implement the experiment. We thank Meghan Busse and Igal Hendel for helpful discussions, and many seminar participants for comments. Tadelis thanks the National Science Foundation for financial support.
Transaction cost economics is an effort to better understand complex economic T organization by s... more Transaction cost economics is an effort to better understand complex economic T organization by selectively joining law, economics, and organization theory. As against neoclassical economics, which is predominantly concerned with price and output, relies extensively on ...
This paper presents a new data infrastructure for measuring economic activity. The infrastructure... more This paper presents a new data infrastructure for measuring economic activity. The infrastructure records transactions and account balances, yielding measurements with scope and accuracy that have little precedent in economics. The data are drawn from a diverse population that overrepresents males and younger adults but contains large numbers of underrepresented groups. The data infrastructure permits evaluation of a benchmark theory in economics that predicts that individuals should use a combination of cash management, saving, and borrowing to make the timing of income irrelevant for the timing of spending. As in previous studies and in contrast to the predictions of the theory, there is a response of spending to the arrival of anticipated income. The data also show, however, that this apparent excess sensitivity of spending results largely from the coincident timing of regular income and regular spending. The remaining excess sensitivity is concentrated among individuals with les...
Procurement contracts are often incomplete because the initial plans and specifications are chang... more Procurement contracts are often incomplete because the initial plans and specifications are changed and refined after the contract is awarded to the lowest bidder. This results in a final cost to the buyer that differs from the low bid, and may also involve significant adaptation and renegotiation costs. We propose a stylized model of bidding for incomplete contracts and apply
This article investigates the use of technology upgrades by incumbent firms in response to potent... more This article investigates the use of technology upgrades by incumbent firms in response to potential entry by government firms. Using a dataset of over 3000 US cable TV systems, the article presents evidence consistent with entry deterrence theory. Incumbent cable systems are more likely to upgrade when located in a market with a government-owned potential entrant.
In market mechanisms, sellers can control the information they reveal to buyers, which in turn ee... more In market mechanisms, sellers can control the information they reveal to buyers, which in turn eects the eciency of markets. This paper studies the eect of information on market outcomes using a randomized eld experiment in a market for wholesale automo- biles. We create random assignments of correct information about quality, and manipulate the availability of information over time. Our results suggest that, as the theoretical lit- erature generally predicts, more information increases expected revenues. Furthermore, by measuring the eects on dierent quality grades of automobiles it seems like the increase in revenues are due to more competition for any given vehicle. Finally, we quantify the value of gathering information and releasing it to potential buyers in this setup. JEL classications C93, D44, D82, L15
Should the buyer of a customized good use competitive bidding or negotiation to select a contract... more Should the buyer of a customized good use competitive bidding or negotiation to select a contractor? To shed light on this question, we offer a framework that first describes the buyer's choice of contracts, and then links this choice to the selection of competitive tendering or negotiations. The analysis suggests a number of possible limitations to the use of competitive tendering. These may perform poorly when projects are complex, contractual design is incomplete and there are few available bidders. Furthermore, competitive tendering may stifle communication between buyers and sellers, preventing the buyer from utilizing the contractor's expertise when designing the project. Implications of these results for procurement in the private and public sector are discussed. * This is a preliminary version of a future chapter to appear in Dimitri, Piga, and Spagnolo (Eds.) "Handbook of Procurement", forthcoming in Manufactured goods, such as computers, TVs and automobiles are mass produced, have standardized characteristics and are typically purchased at list price. Other goods, such as new buildings, fighter jets, custom software or consulting services are tailored to fit a procurer's specific and often unique needs. To procure these customized goods, the procurer hires a contractor who supplies the good according to a set of desired specifications. We call this the procurement problem.
Procurement contracts are often incomplete because the initial plans and specifications are chang... more Procurement contracts are often incomplete because the initial plans and specifications are changed and refined after the contract is awarded to the lowest bidder. This results in a final cost to the buyer that differs from the low bid, and may also involve significant adaptation and renegotiation costs.
ABSTRACT When procurement contracts are incomplete, they are frequently changed after the contrac... more ABSTRACT When procurement contracts are incomplete, they are frequently changed after the contract is awarded to the lowest bidder. This results in a final cost that differs from the initial price, and may involve significant transaction costs due to renegotiation. We propose a stylized model of bidding for incomplete contracts and apply it to data from highway repair contracts. We estimate the magnitude of transaction costs and their impact using both reduced form and fully structural models. Our results suggest that transactions costs are a significant and important determinant of observed bids, and that bidders strategically respond to contractual incompleteness. Our findings point at disadvantages of the traditional bidding process that are a consequence of transaction costs from contract adaptations.
Market outcomes depend on the quality of information available to its participants. We measure th... more Market outcomes depend on the quality of information available to its participants. We measure the effect of information disclosure on market outcomes using a large-scale field experiment that randomly discloses information about quality in wholesale automobile auctions. As the theoretical literature predicts, information disclosure increases expected revenues. However, in contrast with conventional theories, the biggest gains are for the best-and worst-quality cars. We argue that information disclosure causes better matching of heterogeneous buyers to different quality cars. This novel explanation both rationalizes patterns in our data and is confirmed by additional tests. Our findings have implications for the design of other markets, including online consumer auctions, procurement auctions, and labor markets. JEL classifications C93, D44, D82, L15 * We are grateful to the management and employees of the firm that provided the data and worked cooperatively with us to implement the experiment. We thank Meghan Busse and Igal Hendel for helpful discussions, and many seminar participants for comments. Tadelis thanks the National Science Foundation for financial support.
Transaction cost economics is an effort to better understand complex economic T organization by s... more Transaction cost economics is an effort to better understand complex economic T organization by selectively joining law, economics, and organization theory. As against neoclassical economics, which is predominantly concerned with price and output, relies extensively on ...
This paper presents a new data infrastructure for measuring economic activity. The infrastructure... more This paper presents a new data infrastructure for measuring economic activity. The infrastructure records transactions and account balances, yielding measurements with scope and accuracy that have little precedent in economics. The data are drawn from a diverse population that overrepresents males and younger adults but contains large numbers of underrepresented groups. The data infrastructure permits evaluation of a benchmark theory in economics that predicts that individuals should use a combination of cash management, saving, and borrowing to make the timing of income irrelevant for the timing of spending. As in previous studies and in contrast to the predictions of the theory, there is a response of spending to the arrival of anticipated income. The data also show, however, that this apparent excess sensitivity of spending results largely from the coincident timing of regular income and regular spending. The remaining excess sensitivity is concentrated among individuals with les...
Procurement contracts are often incomplete because the initial plans and specifications are chang... more Procurement contracts are often incomplete because the initial plans and specifications are changed and refined after the contract is awarded to the lowest bidder. This results in a final cost to the buyer that differs from the low bid, and may also involve significant adaptation and renegotiation costs. We propose a stylized model of bidding for incomplete contracts and apply
This article investigates the use of technology upgrades by incumbent firms in response to potent... more This article investigates the use of technology upgrades by incumbent firms in response to potential entry by government firms. Using a dataset of over 3000 US cable TV systems, the article presents evidence consistent with entry deterrence theory. Incumbent cable systems are more likely to upgrade when located in a market with a government-owned potential entrant.
In market mechanisms, sellers can control the information they reveal to buyers, which in turn ee... more In market mechanisms, sellers can control the information they reveal to buyers, which in turn eects the eciency of markets. This paper studies the eect of information on market outcomes using a randomized eld experiment in a market for wholesale automo- biles. We create random assignments of correct information about quality, and manipulate the availability of information over time. Our results suggest that, as the theoretical lit- erature generally predicts, more information increases expected revenues. Furthermore, by measuring the eects on dierent quality grades of automobiles it seems like the increase in revenues are due to more competition for any given vehicle. Finally, we quantify the value of gathering information and releasing it to potential buyers in this setup. JEL classications C93, D44, D82, L15
Should the buyer of a customized good use competitive bidding or negotiation to select a contract... more Should the buyer of a customized good use competitive bidding or negotiation to select a contractor? To shed light on this question, we offer a framework that first describes the buyer's choice of contracts, and then links this choice to the selection of competitive tendering or negotiations. The analysis suggests a number of possible limitations to the use of competitive tendering. These may perform poorly when projects are complex, contractual design is incomplete and there are few available bidders. Furthermore, competitive tendering may stifle communication between buyers and sellers, preventing the buyer from utilizing the contractor's expertise when designing the project. Implications of these results for procurement in the private and public sector are discussed. * This is a preliminary version of a future chapter to appear in Dimitri, Piga, and Spagnolo (Eds.) "Handbook of Procurement", forthcoming in Manufactured goods, such as computers, TVs and automobiles are mass produced, have standardized characteristics and are typically purchased at list price. Other goods, such as new buildings, fighter jets, custom software or consulting services are tailored to fit a procurer's specific and often unique needs. To procure these customized goods, the procurer hires a contractor who supplies the good according to a set of desired specifications. We call this the procurement problem.
Procurement contracts are often incomplete because the initial plans and specifications are chang... more Procurement contracts are often incomplete because the initial plans and specifications are changed and refined after the contract is awarded to the lowest bidder. This results in a final cost to the buyer that differs from the low bid, and may also involve significant adaptation and renegotiation costs.
ABSTRACT When procurement contracts are incomplete, they are frequently changed after the contrac... more ABSTRACT When procurement contracts are incomplete, they are frequently changed after the contract is awarded to the lowest bidder. This results in a final cost that differs from the initial price, and may involve significant transaction costs due to renegotiation. We propose a stylized model of bidding for incomplete contracts and apply it to data from highway repair contracts. We estimate the magnitude of transaction costs and their impact using both reduced form and fully structural models. Our results suggest that transactions costs are a significant and important determinant of observed bids, and that bidders strategically respond to contractual incompleteness. Our findings point at disadvantages of the traditional bidding process that are a consequence of transaction costs from contract adaptations.
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Papers by Steven Tadelis