Cost Overrun and Auction Format in Public Works

We study the effect on cost overruns of auction formats (average bid as opposed to first price rule) conditional on the entry mechanisms (open as opposed to restricted participation).The dataset is a panel of auctions held in the Italian Veneto region between 2004 and 2006. It includes small size public projects (with reserve price up to one million euros) in such sectors as road works and building maintenance. It is commonly believed that cost overruns are lower under average bid auctions relative to first price auctions. We find support to this belief only when participation to the auction is restricted