Abstract
In public procurement auctions, governments routinely offer preferences to qualified firms in the form of bid discounts. Previous studies on bid discounting do not account for affiliation – a form of cost dependence between bidders that is likely to occur in a public procurement environment. Utilizing data from the New Mexico Department of Transportation’s Resident Preference Program, I develop and estimate an empirical model of firm bidding and entry that allows for affiliation in firms’ project costs. I find evidence of affiliation and show how it changes preference auction outcomes.
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