Information Revelation, Price Formation Control, And Strict Enforcement

The methods of trading including agreement, competitive bidding and invite public bidding are based on the Auction Theory. The essence of the auction is to achieve the equalized allocation of between the agencies by determining and adjusting the market-clearing price. Therefore, it can perform the price-discovery function of the property transaction. The key point in improving the efficiency of bidding is to define the incentive mechanism. The design of the incentive mechanism must follow two constraints as follows:first, participation constraint, that is, a rational property assignee will accept the designed rules if and only if the expected utility of the acceptance is not less than the one of the rejection. Second, incentive compatibility constraint. Given that the property bargainer doesn't know the type of the assignee, the assignee must choose the activities which the bargainer wants him to choose. The mechanism designed without knowing of the type of the bidders should stimulate the bidders act in accordance with the tenderee's intention. To achieve individual rationality constraint, a reasonable tendering mechanism is needed in order to make the competitive companies quote a competitive price. This is conducive to achieving a win-win situation. To achieve incentive compatibility constraint, contract management for construction project should become a incentive method to prompt the contract parties to make joint efforts to this end.It can be seen from the conception of Bidding that it is necessary for the tenderee to own a marketable attribute in order to let the bidding mechanism play its due role. In other words, only the seeking of the lowest price can encourage the tenderee to choose the contractor who give the lowest quote. Secondly, the bidders must abide by the rules of the market competition to ensure the quote to be the lowest one. At last, there must be a self-contained and impartial remedy to settle the disputes between the Contract parties. Under the conditions of full rationality, buyers have access to select the qualified contractors which give the lowest quote. Therefore, the tenderee has the enthusiasm to monitor the bidders to abide by the market rules and the bidders also will act according to the rules or else they will lose the benefits of the transaction. But in fact, if the officials conspire with the bidders and suppliers to evade bidding and conceal the real cost of procurement, officials will be able to derive greater benefits. That is to say, if the collusive behavior won't lead to high cost or the probability of being punished is very low, the officials are motivated to adopt corrupt activities. For this reason, a institutional guarantee is necessary to ensure the bidding mechanism to play a role in government procurement.Based on the above analysis, this paper summarized the effects of information asymmetry on the bidding mechanism and intended to explain the reason why we choose bidding mechanism. The bidding process is a process of price-formation. Because of the incomplete disclosure of information, there is the probability of collusive bidding. So this paper wanted to solve these problems of price-regulation, collusion and information asymmetry with Institutional-impact theories and monitor theories. Furthermore, it will put forward feasible policy recommendations.First of all, this paper made a historical retrospect of the system of competitive bidding from its beginning to take shape in 80's to the promulgation of Law of the people's republic of china on bid invitation and bidding in 2000. Then the paper made theoretical and empirical research on these questions below:Why do we choose system of competitive bidding? What is the mechanism of bidding system? How does bidding system protect the interests of the contract parties? Does the strength of protection depend on the categoricalness of the regulations?On the other hand, the interference of Government also influence on the development of the construction bidding system. Because of the interference of the government, a lot of biddings are only a kind of formalism. What is the most urgent problem? How to improve the system of competitive bidding? How to make more interests by the bidding system? This paper will answer these questions both in both theoretical and empirical aspects.