Incentives for Repeated Contracts in Public Sector: Empirical Study of Gasoline Procurement in Russia

20 Pages Posted: 13 Jan 2015

See all articles by Andrei A. Yakovlev

Andrei A. Yakovlev

National Research University Higher School of Economics

Oleg Vyglovsky

National Research University Higher School of Economics

Olga Demidova

National Research University Higher School of Economics

Alexander Bashlyk

National Research University Higher School of Economics

Date Written: January 12, 2015

Abstract

This paper analyzes the phenomenon of repeated procurements made by public sector customers from the same supplier. The previous surveys of “relational contracts” gave different explanations for the possible implications of such repeated procurements, but those surveys dealt mostly with goods and services, with quality difficult to verify at the point of delivery. This work studies the impact of repeated procurements on the price of a simple homogeneous product. We presume that the downward price shift of such a product during repeated procurements can be the consequence of transaction costs reduction in the framework of the bona fide behavior of a customer and supplier. An upward shift in the prices as compared to the market average can, on the contrary, be interpreted as an indirect indication of corrupt collusion between them. Using a huge dataset on procurements of AI-92 gasoline in Russia in 2011, we show that the price difference between repeated and one-time contracts can be explained by the type of procurement procedures providing different opportunities for corrupt behavior. Less transparent procedures (single-sourcing and requests for quotations) are more suitable for corrupt collusion. This might explain why the prices of repeat contracts in this case were higher. On the contrary, the prices of repeat contracts were lower compared to one-time procurement in the case of more transparent e-auctions.

Keywords: public procurement, repeated contracts, relational contracting, corruption, e-auction

JEL Classification: H57, L14

Suggested Citation

Yakovlev, Andrei A. and Vyglovsky, Oleg and Demidova, Olga and Bashlyk, Alexander, Incentives for Repeated Contracts in Public Sector: Empirical Study of Gasoline Procurement in Russia (January 12, 2015). Higher School of Economics Research Paper No. WP BRP 24/PA/2015. Available at SSRN: https://ssrn.com/abstract=2548461 or http://dx.doi.org/10.2139/ssrn.2548461

Andrei A. Yakovlev (Contact Author)

National Research University Higher School of Economics ( email )

Myasnitskaya street, 20
Moscow, Moscow 119017
Russia

Oleg Vyglovsky

National Research University Higher School of Economics ( email )

Myasnitskaya street, 20
Moscow, Moscow 119017
Russia

Olga Demidova

National Research University Higher School of Economics ( email )

Myasnitskaya street, 20
Moscow, Moscow 119017
Russia

Alexander Bashlyk

National Research University Higher School of Economics ( email )

Myasnitskaya street, 20
Moscow, Moscow 119017
Russia

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