Interesting quote from the comments in the explanation:
“I have even heard that when the country of Italy puts out a work request, they take all of the companies estimates and average them. The company closest to average gets the contract.”
This sounds like an excellent idea, and should presumably incentivise contractors to give more accurate estimates than they would normally. Are there other methods of getting estimates from contractors that reward accurate estimates?
The problem being, of course, that it would always be difficult to punish contractors for finishing work early, as this gets incentives wrong in a different way.
Also sounds like it incentivises collusion; company A and B take turns on contracts—one bids a ridiculously high sum that will skew the average, and the other turns in a more reasonable but inflated bid. The inflated bid is closer to the skewed average, and whomever’s turn it is profits quite a bit.
Interesting quote from the comments in the explanation:
This sounds like an excellent idea, and should presumably incentivise contractors to give more accurate estimates than they would normally. Are there other methods of getting estimates from contractors that reward accurate estimates?
The problem being, of course, that it would always be difficult to punish contractors for finishing work early, as this gets incentives wrong in a different way.
Also sounds like it incentivises collusion; company A and B take turns on contracts—one bids a ridiculously high sum that will skew the average, and the other turns in a more reasonable but inflated bid. The inflated bid is closer to the skewed average, and whomever’s turn it is profits quite a bit.