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

Giuffrida Leonardo M.Rovigatti Gabriele
CEIS Research Paper
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.

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Number: 411
Keywords: oversight, procurement, screening, red tape, moral hazard.
JEL codes: D21,D44,D82,H57,L74
Volume: 15
Issue: 6
Date: Tuesday, July 18, 2017
Revision Date: Tuesday, July 18, 2017