13(34)
take into consideration that the most anxious tenderers can be assumed
to be risk-averse, not risk-neutral as assumed in the basic strategic model,
this figure should be further adjusted downwards, to perhaps 2 or 3
percent. The difference between the two models is consequently next to
negligible in typical procurement situations. For deriving a reasonable
threshold value, one can thus safely rely on tenders as good
approximations of actual valuations and base an estimate of the supply
curve on actual tenders.
It is reasonable to ask whether any demand-side effects from procuring
entities need to be taken into account. In general, the answer is in the
affirmative. In the present context, however, focus is on small procurement
operations in the vicinity of a threshold yet to be determined. Within this
category, procuring agencies are small customers that will not affect supply
or demand conditions noticeably. The situation is very different in defense
or large infrastructure projects, where the government is one of a few or
the only buyer, and producers are likewise few. These projects are always
large enough to justify open procurement, however.
Behavior among Procuring Entities
The gain estimated from formal procurement depends critically on what
is assumed about the behavior among procurement officials in the absence
of a regulatory framework. A threshold is an approximate solution of
an optimization problem that is supposed to cover a wide spectrum of
behavioral patterns among those who are entrusted with the task of
procurement. Those who are critical of procurement rules tend to portray
procuring officials as omniscient, impeccably objective civil servants with
an unlimited amount of time to follow markets and identify potential
improvements, and almighty in the sense that their recommendations
are always followed. At the other end of the spectrum, corruption exists as
a permanent threat. In real life, we can expect to find anything between
these extremes. A common problem among civil servants is a lack of time,
which affects the possibilities of both keeping in touch with the relevant
markets and finding the time necessary to carry out a full-fledged
procurement when this is not mandatory. In extreme cases, the regulative
framework offers an escape route, but otherwise the procurement official
may feel pressure from those in charge of operations to use shortcuts to
circumvent the rules. Often, an official coerced between different tasks
will resort to solutions that are readily available and satisfactory although
not necessarily optimal (Simon 1997). In the case of procurement, this is
tantamount to relying on suppliers that are already known and have been
found to deliver satisfactorily. If this is repeated over a long time period,
quasi-emotional ties may develop between the supplier and the
procurement official; in fact, suppliers often support this process by
maintaining the relationship, presenting gifts that are small enough not
to qualify as bribes, etc. This process can be expected to affect pricing.
