Court Efficiency and Procurement Performance

Abstract

Disputes over penalties for breach of contract are often solved in court. A simple model shows how inefficient courts may induce public buyers to refrain from enforcing penalties for late delivery to avoid litigation, inducing sellers to delay. Using a large dataset on Italian public procurement, we then study empirically the effects of court inefficiency on public work performance. We find that, where courts are inefficient: i) public works are delivered with longer delays; ii) delays increase for more valuable contracts; iii) contracts are more often awarded to larger suppliers; iv) a higher share of the payment is postponed after delivery.

Keywords: court efficiency; public procurement; time incentives; performance in contract execution; delay; litigation; enforcement cost

JEL Classification: H41, H57, K41