The law of small numbers: Investigating the benefits of restricted auctions for public procurement

Abstract: A commonly accepted view in the academic literature is that dispensing with competition may only be beneficial when tendering complex contracts. However, restricted auctions are frequently used among EU-member states to procure small contracts (OECD, 2010). In this paper, we investigate this paradox.

Using an original dataset of 180 contracts used by a local public buyer of social housing between 2006 and 2009, we show that limiting competition may enable economies to be made on transaction costs while the most e!cient bidders still come forward, and that abuses such as corruption or favouritism do not result. To our knowledge, this paper is the first to shed light on the advantages of using restricted auctions when tendering small simple contracts.