Can the Private Sector Ensure the Public Interest? Evidence from Federal Procurement
60 Pages Posted: 21 Jul 2017
Date Written: July 17, 2017
We empirically investigate the effect of oversight on contract outcomes in public procurement. In particular, we stress a distinction between public and private oversight: the former is a set of bureaucratic checks enacted by contracting offices, while the latter is carried out by private insurance companies whose money is at stake through so-called surety bonding. We analyze the universe of U.S. federal contracts in the period 2005-2015 and exploit an exogenous variation in the threshold for both sources of oversight, estimating their causal effects on costs and execution time. We find that: (i) public oversight negatively affects outcomes, in particular for less competent buyers; (ii) private oversight has a positive effect on outcomes by affecting both the ex-ante screening of bidders - altering the pool of winning firms - and the ex-post behavior of contractors.
Keywords: oversight, procurement, screening, red tape, moral hazard
JEL Classification: D21, D44, D82, H57, L74
Suggested Citation: Suggested Citation