Individuals and Organizations as Sources of State Effectiveness, and Consequences for Policy

56 Pages Posted: 1 May 2017

See all articles by Michael Best

Michael Best

Stanford University

Jonas Hjort

Columbia Business School - Finance and Economics

David Szakonyi

George Washington University; National Research University Higher School of Economics

Date Written: April 2017

Abstract

How much of the variation in state effectiveness is due to the individuals and organizations responsible for implementing policy? We investigate this question and its implications for policy design in the context of public procurement, using a text-based product classification method to measure bureaucratic output. We show that effective procurers lower bid preparation/submission costs, and that 60% of within-product purchase-price variation across 16 million purchases in Russia in 2011-2015 is due to the bureaucrats and organizations administering procurement processes. This has dramatic policy consequences. To illustrate these, we study a ubiquitous procurement policy: bid preferences for favored firms (here domestic manufacturers). The policy decreases overall entry and increases prices when procurers are effective, but has the opposite impact with ineffective procurers, as predicted by a simple endogenous-entry model of procurement. Our results imply that the state’s often overlooked bureaucratic tier is critical for effectiveness and the make-up of optimal policies.

Suggested Citation

Best, Michael and Hjort, Jonas and Szakonyi, David, Individuals and Organizations as Sources of State Effectiveness, and Consequences for Policy (April 2017). NBER Working Paper No. w23350. Available at SSRN: https://ssrn.com/abstract=2961055

Michael Best (Contact Author)

Stanford University ( email )

Stanford, CA 94305
United States

Jonas Hjort

Columbia Business School - Finance and Economics ( email )

3022 Broadway
New York, NY 10027
United States

David Szakonyi

George Washington University ( email )

2121 I Street NW
Washington, DC 20052
United States

National Research University Higher School of Economics ( email )

Myasnitskaya street, 20
Moscow, Moscow 119017
Russia

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