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 (2022)
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.
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 investigate the impact of public procurement spending on business survival. Using Italy as a laboratory, we construct a large-scale dataset on firms—covering balance-sheet, income-statement, and administrative records—and match it with public contract data. Employing a regression discontinuity design for close-call procurement auctions, we find that winners are more likely to stay in the market than marginal losers after the award and that the survival boost lasts longer than the contract duration. We document that this effect is associated with earnings substitution rather than increased business scale. Regardless of size, contracts that are long-lasting and awarded by decentralized buyers are more impactful for survival prospects. Survivors experience no productivity premium, but rather an improvement in their credit position.
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 a priori 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 post-award outcomes using an inverse probability weighting regression adjustment. We find that 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 set-aside, the stronger these effects. In a subset of our data, we leverage an unexpected spike in setaside spending to study implications for firm dynamics. We do not find evidence of increasing recipients’ performance over time.
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 from the EU to local public contracts? (with Bohne, A. and Casper, J.)
Public Procurement as an Innovation Policy. Where do we stand? RQ: What is the current state of knowledge on innovative public procurement and what are outstanding issues? (with Chiappinelli, O. and Spagnolo, G.)
Born or Made Bureaucrats? Personal Traits of Officials and Public Good Provision. RQ: Are bureaucratic traits (also) shaped by tenure or (only) due to self-selection? How does their variation affect the provision of public goods?
When Transparency Backfires: Entry Coordination in Electronic Auctions. RQ: How to detect cartels of suppliers from bidders’ entry decisions in public auctions? (with De Leverano, A. and Titl, V.)
Public Procurement in the Anthropocene: Green Contracts and Firm Emissions. RQ: Does the awarding of green public procurement contracts affect firms’ CO2 emission levels? (with Dalò, A.)
Equity versus Efficiency: Small Business Set-aside, Dynamic Capabilities, and Contract Performance. RQ: Do the capabilities of public buyers affect procurement contract outcomes and distributive goals through set-aside tenders? (with Cappelletti, M. and Heaton, S.)
Guess Who’s Evading on Dinner: Experimental Evidence on the Incidence of VAT Evasion. RQ: How are the financial gains of VAT evasion split between consumers and producers? (with Bohne, A. and Brusco, G.)