ONLINE APPENDIX Entry and Subcontracting in Public Procurement Auctions

We consider an independent private value model. N risk-neutral firms compete to win 7 a contract. At the time of bidding, for any bidder i the expected cost of completing the 8 project is: c = x + y + θε, where x is a privately observed cost, y and are commonly 9 observed costs with 0 < ε < y and θ, 0 < θ < 1, is the probability that the contract will 10 be expensive to complete. Whether the contract is expensive or not to complete is known 11 only after the auction is held. There are two types of bidders: type L default on their bid 12 if the contract turns out to be expensive and complete otherwise. Type H bidders always 13 complete. Bidders are type symmetric, independently drawing their private cost from FXj , 14 j = {H,L}, that is assumed to be absolutely continuous and have support on [xj, xj], where 15 0 ≤ xj < xj <∞. We indicate with Nj, the number of bidders of type j = {H,L}. 16