Average bid auctions prevent bidder defaults in public procurement, saving taxpayer money.
The article explores different auction methods in public procurement to prevent bidders from defaulting on their bids. The researchers compare a standard auction with a new method called the average bid auction. They find that when penalties for defaulting are uneven and bidders have similar valuations, the average bid auction is better for the auctioneer if the costs of a bidder defaulting are high. The study uses data from Italian public procurement auctions to estimate costs, markups, and inefficiencies of the average bid auction.