Infrastructure construction and both Auctions and Game theory.
When we began discussing bidding strategies in class, I immediately thought of the link to my Regulation and Infrastructure Policy class. While bidding in Networks implies individualistic behavioral decisions, building large infrastructure projects requires Special Purpose Vehicles (SPVs) to create contracts amongst entities to fund that infrastructure. The paper I have linked to below and analyzed involves the process of bidding for construction projects.
This article shows the bidding process on public construction contracts where privately sealed bids are chosen on the lowest reasonable bid, which is defined as one “adequately accounted for”. In contrast, private construction contracts have less regulation throughout the bidding process and have a larger breadth of rules for soliciting bids as well. The entire process is similar to a first or second price bid depending on how reasonable the bids are; however, the process also is reversed in that the auction is for the lowest rather than highest price. This reasonability adds another dimension to losing in that the dominant strategy needs to further match up with the seller for fear of not reaching the desired reasonable price. On the other hand, one must not overvalue the project and surpass the reasonable price, creating a “too high” price. The interaction of construction infrastructure bids demonstrates the complex nature of auctioning.
Construction infrastructure projects not only involve bidding processes, but also involve game theory of choosing which roads to place where and which tolls to place where. One such instance is the implementation of cashless tolls on the Tappan Zee Bridge that is being constructed. As my second supplementary article states, “each commuter will annually save about 9 hours a year on their travel by using the cashless toll lanes”. This reflects our ideas of opportunity cost of both time and a monetary value. The decision to apply tolls during construction of infrastructure involves game theory predicting where travelers will choose to go with the addition of another road or bridge.
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