BlueSky Thinking Summary

Procurement decisions can be precarious, especially in cases of quality being paramount but difficult to ensure through contracts.

Nicola Persico—in his research together with Giuseppe Lopomo and Alessandro Villa—proposes a solution to be found in the Lowball Lottery Auction.

LoLA, in contrast to traditional auctions that favor the lowest bid, sets up a floor price to weed out less-qualified suppliers and reduces ex ante the potential risk of a poor buy.

The advantages of the method itself lie in balancing cost-saving desires with quality concerns, benefiting both public sectors that have anti-corruption policies and private entities alike.

They prove that LoLA may be more costly at the beginning but avoids future spending due to delays and overruns, saving money in the long run by analyzing the Italian government auctions.

Based on this approach, this is an optimization of procurement outcomes not only when considering the price but also attenuating the "lemons problem" inherent in the markets of sellers knowing more about the quality of the product than the buyers.

For any organization that is treading uncertain procurement landscapes, LoLA offers a strategic framework for best value and reliability.