Date Added: Jan 2011
Programs that encourage the participation of Disadvantaged Business Enterprises (DBE) as subcontractors have been a part of government procurement auctions for over three decades. In this paper, the authors examine the impact of a program that requires prime contractors to subcontract out a portion of a highway procurement project to DBE firms. They study how DBE subcontracting requirements affect bidding behavior in federally funded projects. Within a symmetric independent private value framework, they use the equilibrium bidding function to obtain the cost distribution of firms undertaking projects either with or without subcontracting goals.