Competitive Procurement with Ex Post Moral Hazard

Bangladesh Institute of Development Studies organized a seminar titled Competitive Procurement with Ex Post Moral Hazard. The seminar was held on 19 September 2023 in BIDS conference room. The seminar started at 2:30 pm and ended at 5:00 pm (BST). Professor Fahad Khalil, Department of Economics, University of Washington, U.S.A., presented the paper at the seminar. Dr. Binayak Sen, Director General of Bangladesh Institute of Development Studies (BIDS), chaired the event. BIDS researchers and experts from F.B.C.C.I., P.R.I., C.P.D., and other research institutes joined physically and through the Zoom online platform. 

During the seminar, Professor Fahad Khalil said competitive procurement is commonly used for public projects. The ex-post moral hazard is often faced where competitive bidding is involved. He mentioned that competition can induce firms to be too aggressive in trying to win the bid and fail to deliver the project satisfactorily. So, the government can offer an incentive scheme, for example, the government can offer an incentive scheme, like a bonus for timely completion.  

In the seminar, Professor Khalil suggested a model that helps screen or address the adverse selection problem (screening out the bad firm). He also indicated that the procurer can benefit by limiting the number of participating firms.

Professor Fahad Khalil said that a firm's efficiency towards future projects cannot be judged based on its previous records only. In conclusion, Dr.  Binayak Sen, director general of BIDS, said there are numerous instances of increased deadlines and costs of infrastructure development projects in Bangladesh.