Labor market regulation and the winner's curse

This paper analyses the impact British Columbia's 1992 Skill Development and Fair Wage Policy (SDFWP) on bid price determination. Econometric analysis of the public school projects tendered between 1989 and 1995 shows that prior to the SDFWP, the common values auction model applied, and bidders facing higher competition surcharged cost estimates in order to avoid the winner's curse. After the SDFWP, collective uncertainty concerning wages declined, and the independent values model became relevant. During this period, bidders responded to rising competition by lowering their bids. This adjustment explains, at least in part, why wage regulation did not raise bid prices. (JEL D44, J38, L74, H57).