It's a Sweetheart of a Deal: Political Connections and Federal Contracting
Networks Financial Institute Working Paper Series 2016-WP-03
36 Pages Posted: 16 Nov 2016 Last revised: 22 Nov 2016
Date Written: November 15, 2016
We examine whether political connections measured by political contributions influences the choice of terms included in government contracts awarded to firms. We construct an index of four “sweetheart” contract terms that are highly favorable to the firm, but not obviously advantageous to the government. We find that firms making larger political contributions more frequently have these terms included in their contracts. We then examine how changes in a firm’s political contributions influence the terms of subsequent contracts. We find that firms which increase their contributions are more likely to have these terms as part of their contract. We conclude that there is a political effect on the choice of terms included in federal contracts awarded to firms.
Keywords: Contracting, political connections
JEL Classification: G32; GT34; G38
Suggested Citation: Suggested Citation