Savings from public procurement centralization in the healthcare system

We show that the introduction of the procurement centralization within the regional healthcare systems in Italy reduced per capita health expenditure approximatelyt by 2–8%, without affecting the level of health-related public services. Our results also indicate that the effect is persistent after six years, and is not influenced by the coexistence of other organizational models, such as amalgamation and hybrid systems. Finally, we document that the reduction in public expenditure is effective only in areas characterized by poor quality of institutions, indicating that procurement centralization might be an effective tool to reduce corruption-related inefficiencies in the health sector.     

A role for public procurement in system innovation: the transformation of the Greater Manchester (UK) waste system

The transformation of socio-technical systems to more sustainable states is more policy induced than market driven. Reflecting this, the potential for governments to direct system transformation has been widely debated. However, this debate concentrates on supply side policies and under analyses the potential for public buyers to steer system innovation. This paper draws from ideas on system innovation, transition management and public procurement to explore how a major public buyer was able to do just this. The paper describes the transformation of the Greater Manchester (UK) waste system from a relatively simple landfill model to a highly complex, multi-technology solution of intensive recycling, composting and energy production. The paper draws three main conclusions: (1) it is possible to orchestrate system innovation through public procurement in certain circumstances; (2) this involves developing the required interdependencies between technologies, institutions and practices; (3) system transformation can be orchestrated from within the incumbent regime.     

Autocratic governors in public procurement

The personal role of sub-national rulers is crucial for regional development in countries with weak institutions. This paper studies the impact of regional governors’ tenure in office and their local ties on procurement performance in Russia. To identify the causal effect, we construct instruments for governor’s tenure by exploiting the regional vote share of ruling party in past parliament elections. We find the evidence that governors who do not have pre-governing local ties in the region (outsiders) demonstrate predatory behaviour, compared to governors with local ties (insiders). Namely, governors-outsiders restrict the competition at awarding stage significantly more than governors-insiders. Moreover, for governors-outsiders this restriction becomes stronger with tenure in office, while governors-insiders do not demonstrate such negative tenure effect. We argue that this restriction of competition by governors-outsiders cannot be explained by the intention of better contracts execution: the delays in execution and the probability of contract termination either increase or keep stable with tenure for governors-outsiders and these outcomes decrease with tenure for governors-insiders.     

Corruption in delegated public procurement auctions

In this paper we theoretically analyse effects of corruption in public procurements within a scoring-auction framework. A corrupt politician, who acts on behalf of the public sector, receives a kickback from the winning bidder. The politician selects the scoring rule. The paper shows that such corruption always leads to lower quality and lower price. Given a level of corruption, a higher bargaining power of the politician in extracting bribes does not affect the quality but leads to higher price.     

Selection criteria and the award procedure in public procurement

This paper examines the admissibility of some selection criteria in the light of European public procurement law. It also points out the opportunity of using such criteria through an economic analysis. The main aspect to be dealt with is the numerical selection criteria, which may hinder firms not fulfilling them from participating in the award procedure. These criteria refer, according to the European Union directives on public procurement, to the economic, financial, and technical capacity of the candidate firms. In our analysis, the legal appreciation should be confronted with an economic analysis of the numerical selection criteria. This analysis is based on an arithmetic approach which focuses on relative rather than absolute values. Thus, through a series of performance indicators, an alternative approach to the above criteria is presented. This paper does not reflect the official position of the Commission of the EU.     

Time overruns as opportunistic behavior in public procurement

We consider the supplier’s strategic choice on delivery time in a public procurement setting as the result of the firm’s opportunistic behavior on the optimal investment timing when production costs are uncertain. We model the supplier’s trade-off between the option value to defer the contract execution and the penalty payment in the event of delays. We also take into account the issue of penalty enforcement, which in turn depends on both the discretion of the court of law in voiding contractual clauses and the “efficiency” of the judicial system (i.e. the average length of civil trials). We test our main results on Italian public procurement data showing that the supplier’s incentive to delay is greater the higher the volatility of production costs and the lower the “efficiency” of the judicial system. We then calibrate the model using parameters that mimic the Italian scenario on public works procurement and calculate the maximum amount that a supplier is “willing to pay” (per day) to postpone the delivery date and infringe the contract provisions. Our calibration results are consistent with the theoretical model’s predictions and the empirical findings.     

The (in) effectiveness of procurement auctions in the public sector

This article studies procurement auctions in the public sector using game theoretical tools. The article shows that when participants in an auction are agents with low abilities (low type), as is common in the public sector, they place the same contract request. As a result, the auction mechanism will rarely produce real competition, thus making this mechanism, which limits bidders to those already within the system, ineffective for use in the public sector job market.     

Effect of public procurement regulation on competition and cost-effectiveness

Journal of Regulatory Economics - This study empirically investigates the impact of public procurement regulation quality on the competition for tenders and the cost-effectiveness of awarded...     

The effects of mafia infiltration on public procurement performance

We examine the effects of Mafia infiltration on public procurement performance, based on a sample of 68,063 public work contracts (PWC) awarded by Italian municipalities over the period 2012–2017, of which 687 are identified as Mafia-infiltrated, either because of being awarded by municipal councils subsequently dissolved due to Mafia infiltration, or because of being won by Mafia-owned firms.Our results reveal that Mafia infiltration is positively associated with number of submitted bids, awarding rebates and execution cost overruns, whereas it is negatively associated with delivery delays for PWC. The effect of Mafia infiltration on execution cost overruns and the probability of their occurrence is weaker for larger PWC, and the elections of the new municipal councils, after the dissolution of the previous ones, do not significantly influence the performance of PWC.Our findings suggest the presence of collusive schemes among bidding firms within the Mafia network and provide new insights for the implementation of more sound policies to tackle practices associated with Mafia infiltration in public procurement.     

The impact of public information on bidding in highway procurement auctions

A number of papers in the theoretical auction literature show that the release of information regarding the seller's valuation of an item can cause bidders to bid more aggressively. This widely accepted result in auction theory remains largely untested in the empirical literature. Recent theoretical work has also shown that this effect can be more pronounced in auctions with larger common cost uncertainty. We examine the impact of a policy change by the Oklahoma Department of Transportation that led to the release of the state's internal estimate of the costs to complete highway construction projects. We perform a differences-in-differences analysis comparing bidding in Texas, a state that had a uniform policy of revealing the same information all throughout the period of analysis, to bidding in Oklahoma. Our results show that, in comparison to Texas auctions, the average bid in Oklahoma fell after the change in engineers’ cost estimate (ECE) policy. This decline in bids was even larger for projects where the common uncertainty in costs is greater. Moreover, the within-auction standard deviation of bids fell after the change in ECE policy with the most significant decline observed again in projects with greater common cost uncertainty.     

The law of small numbers: investigating the benefits of restricted auctions for public procurement

A commonly accepted view in the academic literature is that dispensing with competition may only be beneficial when tendering complex contracts. However, restricted auctions are frequently used among EU member states to procure small contracts. In this article, we investigate this paradox. Using an original data set of 180 contracts used by a local public buyer of social housing between 2006 and 2009, we show that limiting competition may enable economies to be made on transaction costs while the most efficient bidders still come forward, and that abuses such as corruption or favouritism do not result. To our knowledge, this article is the first to shed light on the advantages of using restricted auctions when tendering small simple contracts.     

Boundedness and nonlinearities in public debt dynamics: A TAR assessment

This study aims to investigate the dynamics of public debts over more than four decades for two of the main developed countries: the USA and the UK. To do this, we apply nonlinearity tests and threshold models. While the first tests enable us to check for further changes in the data, threshold models are required to assess the switching-regime hypothesis and to apprehend the main changes in public debts through different regimes. Our results provide several interesting findings. First, for both countries, we noted several structural breaks associated with well-known economic downturns, oil shocks, debt crises and financial crashes. Second, public debt dynamics seem to be characterized by various threshold effects that can improve the modeling and forecasting of public debt evolution. It is important to note that public debts vary significantly according to the regime and that a regime can be induced by specific macroeconomic factors. Keeping a close eye on such factors may help economists and policymakers to better control future public debt evolutions.     

A preliminary theoretical examination of the targeted public distribution system in India

A theoretical model of targeting in the public distribution system is set out. In any system of targeting there could be inclusion and exclusion errors. These errors could be reduced by search by the state. The state aims to minimise the costs of food administration subject to keeping the magnitude of the exclusion error bounded. Targeting involves a consideration of the objective poverty level, the official poverty level and the targeted poverty level by the state. The targeted poverty level could be less than the official poverty level if the extent of search is not adequate. The objective poverty level is an increasing function of the above poverty line issue price of food due to exclusion errors, a decreasing function of the procurement price of food and by definition the below poverty line issue price of food. The instruments in the hands of the state are the official poverty level, the above poverty line issue price for food, the procurement price of food and the extent of search. The comparative static implications of the model are set out.     

Temporary partnership and subcontracting: Pre- vs. post- award outsourcing in public procurement

We empirically compare bids (i.e. prices) from temporary partnerships (TPs), that outsource part of the contract before the auction, and firms that outsource afterwards. Using a comprehensive dataset on procurement auctions for public works in Valle d’Aosta (Italy), we find that the timing of outsourcing affects the bids and the probability of winning the auction. Specifically, TPs bid closer to the payoff maximizing offer and are more likely to win. Hence, the price paid by the public buyer is lower. These results are supported by a simple theoretical setting showing that, by pre-committing to a TP, suppliers have a lower risk of being “held up” by subcontractors than firms that outsource part of the work after the bidding phase. Our results show the advantage for TPs of freely choosing partners, size and boundaries before the auction, highlighting their potential in fostering the effective participation in public procurement procedures of Small and Medium-sized Enterprises (SMEs).     

Determinants of adaptation costs in procurement: an empirical estimation on Italian public works contracts

It is widely agreed that rules governing public procurement should be designed to achieve value for money. However, in the public works sector, ‘…?the good being procured is usually complex and hard to be exactly specified ex ante, …?[and] alterations to the original project might be needed after the contract is awarded. This may result in considerable discrepancies between the lowest winning bid and the actual costs that are incurred by the buyer’ (Bajari et al., 2006). There is now a wide body of literature focusing on cost escalation during the execution of contracts and their estimates reveal that it can be often quite large. This article is aimed at offering an empirical test of the determinants of adaptation costs in the public works procurement. Using a detailed data set on Italian public works contracts, we run an empirical analysis, grounded on the main conclusions reached in the literature, to test for the main drivers of adaptation costs.     

On transformation of public sector research: A preliminary post-STBL assessment in Taiwan

The paper examines the impact of the Science and Technology Basic Law (STBL) enactment of 1999 on the transformation of public sector research (PSR) in Taiwan. The paper proposes a research framework to assess the changes on PSR mainly through four dimensions: (1) new infrastructure build-up, (2) industrial research links, (3) patenting and licensing, and (4) industrial education/training. Nine research hypotheses are developed. Based on the survey data of 107 PSR establishments, the paper reveals that Taiwan PSR has experienced a burgeoning infrastructure build-up and a more active partnership with industry in the post-STBL period. However, the paper argues that the scientific-economic transformation of PSR in Taiwan tends to develop better “industrial collaborative research and training capabilities” than “patenting and licensing capabilities” in the preliminary post-STBL period. The divergence on patenting, licensing and partnership capabilities still persists between experienced PSREs and non-experienced ones, suggesting a learning effect. These findings provide crucial policy implications to delineate appropriate roles of PSR in the new scientific-economic regime.     

The new stability and growth pact: A first assessment

The paper proposes a theoretical model of fiscal policy offering new insights on some of the key policy trade-offs involved in the recent reform of the Stability and Growth Pact. As suggested by the proponents of the reform, greater room for case-specific economic judgment in the implementation of the pact may improve welfare. In our model, these gains occur because the consolidation path implied by the implementation of the pact does not discourage high-quality measures. In practice, however, the difficulty to extract true policy intent from budget figures may hinder the qualitative assessment of fiscal policy. Hence, reforming a rules-based fiscal framework with a view to enhance its “economic rationale” would also require closer monitoring, a better grasp of the policies underlying the budget, and ultimately stricter enforcement. In that sense, recent reforms are at best unhelpful.     

The WTO dispute settlement system: a first assessment from an economic perspective

We explore the incentives countries face in trade litigationwithin the new WTO dispute settlement system. Our analysis yieldsa number of interesting predictions, First, because sanctionsare ruled out during the litigation process, the dispute settlementsystem does not preclude all new trade restrictions. However,the agenda-setting capacity of the complainant, including itsright to force a decision, make trade restrictions less attractivethan under the WTO's predecessor, GATT. Second, the system'sappellate review provides the losing defendant with strong incentivesto delay negative findings, and both parties with a possibilityto signal their determinacy in fighting the case. Third, a relativelyweak implementation procedure potentially reinforces incentivesto violate WTO trade rules. Fourth, bilateral settlements aremore likely at an early stage in the process and are biasedtoward the expected outcome of the formal dispute settlementprocedure. Empirical evidence based on a first dataset of casesat an advanced stage of the litigation process provides qualitativesupport for our claims.