Can the Private Sector Ensure the Public Interest? Evidence from Federal Procurement

79 Pages Posted: 30 Oct 2018 Last revised: 9 Jan 2019

See all articles by Leonardo M. Giuffrida

Leonardo M. Giuffrida

Centre for European Economic Research (ZEW)

Gabriele Rovigatti

Bank of Italy

Date Written: 2018

Abstract

We empirically investigate the effect of procurement oversight on contract outcomes. 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 the socalled performance bonding. By focusing on the U.S. federal service contracts in the period 2005-2015, we exploit an exogenous variation in the threshold for the application of both sources of oversight in order to separately estimate their causal effects on execution costs and time. We find that: (i) private oversight has a positive effect on outcomes through the screening of bidders that alters the pool of winning firms; (ii) public oversight negatively affects outcomes, due to excessive red tape induced by low-competence buyers.

Keywords: oversight, procurement, screening, red tape, moral hazard.

JEL Classification: D21, D44, D82, H57, L74.

Suggested Citation

Giuffrida, Leonardo Maria and Rovigatti, Gabriele, Can the Private Sector Ensure the Public Interest? Evidence from Federal Procurement (2018). ZEW - Centre for European Economic Research Discussion Paper No. 18-045, Available at SSRN: https://ssrn.com/abstract=3274529 or http://dx.doi.org/10.2139/ssrn.3274529

Leonardo Maria Giuffrida (Contact Author)

Centre for European Economic Research (ZEW) ( email )

L 7, 1
Mannheim, 68161
Germany

Gabriele Rovigatti

Bank of Italy ( email )

Via Nazionale 91
Rome, 00184
Italy

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