published & FortHCOMING papers
(previously circulated under the title “Can the Private Sector Ensure the Public Interest? Evidence from Federal Procurement”)
with G. Rovigatti
Journal of Economics & Management Strategy (Forthcoming)
We analyze an important but little-studied institution for balancing supply risk in the management of procurement operations: performance bonding. By adding the surety as a third party that guarantees contract fulfillment between supplier and buyer, performance bonding aims to streamline the purchasing process by influencing both contractor selection in the bidding phase and contract enforcement during project execution. Using the data on US government procurement from 2005 to 2015 and exploiting an exogenous variation in the threshold for its application to construction contracts, we find that performance bonding improves contract outcomes by 9 and 4.2 percent in terms of delays and extra costs, respectively. Net of bond premia, which by law are included in the award amounts, this effect translates into a savings of about 4 percent in the budget for federal construction projects and 16 percent for mid-size projects. We provide suggestive evidence on the effectiveness of selection and monitoring by sureties as driving channels.
with F. Decarolis, G. de Rassenfosse, E. Iossa, V. Mollisi, E. Raiteri, G. Spagnolo
Journal of Economics & Management Strategy (2021)
This study provides the first quantification of buyers’ role in the outcome of R&D procurement contracts. We combine together four data sources on US federal R&D contracts, follow-on patented inventions, federal public workforce characteristics, and perception of their work environment. By exploiting the observability of deaths of federal employees, we find that managers’ death events negatively affect innovation outcomes: a 1 percent increase in the share of relevant public officer deaths causes a decline of 32.3 percent of patents per contract, 20.5 percent patent citations per contract and 34.3 percent patent claims per contract. These effects are driven by the deaths occurring in the six months before the contract is awarded, thereby indicating the relevance of the design and award stage relative to ex-post contract monitoring. Lower levels of self-reported within-office cooperation also negatively impact R&D outcomes.
To what extent does a more competent public bureaucracy contribute to better economic outcomes? We address this question in the context of the US federal procurement of services and works, by combining contract-level data on procurement performance and bureau-level data on competence and workforce characteristics. We use the death occurrences of specific types of employees as instruments and find that an increase in bureau competence causes a significant and economically important reduction in: i) time delays, ii) cost overruns, and iii) number of renegotiations. Cooperation within the office appears to be a key driver of the findings.
A well-functioning bureaucracy is a precondition for efficient public goods provision. However, bureaucratic decision-making is still largely seen as a black box. We provide novel insights into the preferences of bureaucrats regarding their work outcomes. We focus on a major public sector activity and survey more than 900 real-life procurement officials in Finland and Germany. The questionnaire includes hypothetical choice experiments to study the relative importance of multiple features in tender outcomes. First, bureaucrats state to have substantial discretion at work but no important incentives, which makes their preferences relevant. Second, our experimental results show that procurers have asymmetric preferences regarding prices: Unexpectedly high prices are avoided but corresponding low prices are not particularly attractive. This creates a tension between the taxpayers’ and procurement officials’ objectives. Third, avoiding bidders with prior bad performance appears to be the most important factor. Fourth, procurers value a certain degree of competition, while litigation concerns and regional favoritism play only a small role. The striking lack of heterogeneous effects across different institutional settings points towards the role of intrinsic motivation among public buyers in countries with high public sector capacity.
Keywords: Bureaucrats, Public Procurement, Preferences, Intrinsic Motivation, Conjoint Experiment. JEL Classification: D73, D90; H11, H57, H83; K41; M54.
Is excessive workload a bottleneck to public agencies? Examining R&D procurements by the US government, we link contract, patent, and office records to the officer responsible to estimate how workload affects contract execution. Unanticipated retirement shifts among officers are used to instrument workload. When an officer’s workload declines, we find a large increase in patenting—keeping procurement budget and number of purchases fixed, an additional officer leads to a 2 percentage point increase in the probability that a contract generates patents, representing 22% of sample variation. We provide suggestive evidence that overworked officers cannot devote sufficient time to key contract specifications.
Keywords: Workload, Public Procurement, Contracting Officer, R&D, Patents. JEL Classification: D23; H57; O31, O32.
We set up a novel dataset for Italy combining i) balance sheet and income statement data on the universe of limited liability companies with ii) firm administrative records on market entry and exit and iii) the quasi-universe of public contracts 2008 through 2018. A procurement-firm puzzle arises: Holding the sector, region, or year fixed and controlling for size, age, and productivity, firms that receive public contracts survive longer. To identify the effect of public demand on firm survival, we rely on bid distribution to inform a regression discontinuity analysis. We find that the survival rate of winners relative to marginal losers is three p.p. (or 66%) higher after 36 months—two years and a half beyond the expiration of the median contract. We provide suggestive evidence that this effect is long-lasting and goes beyond earnings boost—a higher share of revenues from public agencies is a mechanism at stake. Public demand does not affect the productivity dynamics of survivors, it makes their future earnings increasingly dependent on public contracts and increases their financial leverage.
Keywords: firm dynamics, government demand, public procurement, productivity, auctions, regression discontinuity design. JEL Classification: D44, H32, H57.
A set-aside restricts participation in procurement contests to targeted firms. Despite being widely used, its effects on actual competition and contract outcomes are ambiguous. We pool a decade of US federal procurement data to shed light on this empirical question using a two-stage approach. To circumvent the lack of exogenous variation in our data, as a first step we draw on random forest techniques to calculate the likelihood of a tender being set aside. We then estimate the effect of restricted tenders on pre- and postaward outcomes using an inverse probability weighting regression adjustment. Set-asides prompt more firms to bid—that is, the increase in targeted bidders more than offsets the loss of untargeted. During the execution phase, set-aside contracts incur higher cost overruns and delays. The more restrictive the setaside, the stronger these effects. In a subset of our data we leverage an expected spike in set-aside spending and we find no evidence of better performance by winners over a ten-year period.
Keywords: small businesses, set-aside, competition, procurement, public contracts, random forest, firm dynamics. JEL Classification: D22; H32, H57; L25.
WORK IN PROGRESS
Are EU Cohesion Funds Procured Away? RQ: Do Objective-1 European regions channel the additional public funding to public contracts? (with Bohne, A. and Casper, J.)
Public Procurement as an Innovation Policy. Where do we stand? RQ: Survey of the academic debate on innovative public procurement (with Chiappinelli, O. and Spagnolo, G.)
Bureaucrats, Implicit Motives, and Public Goods. RQ: How are bureaucratic characteristics shaped and how do they affect the provision of public goods?
When Transparency Backfires: Collusion on Participation in Electronic Tenders. RQ: how to detect entry coordination in auctions from cartels of firms? (with De Leverano, A. and Titl, V.)
Public Procurement in the Anthropocene: Green Contracts and Firm Emissions. RQ: does winning green public contracts makes firms more sustainable? (with Dalò, A.)
The Incidence of VAT Evasion: Evidence from Restaurants. RQ: How are the financial gains of VAT evasion split between consumers and producers? (with Bohne, A. and Brusco, G.)