Can the Private Sector Ensure the Public Interest? Evidence from Federal Procurement
79 Pages Posted: 30 Oct 2018 Last revised: 9 Jan 2019
Date Written: 2018
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: Suggested Citation