The Cost of Favoritism in Public Procurement

Bruno Baranek; Vitezslav Titl

doi:10.1086/727793

The Cost of Favoritism in Public Procurement

Bruno Baranek
, Vitezslav Titl

Princeton University

Research output: Contribution to journal › Article › Academic › peer-review

Abstract

Are political connections in public procurement harmful or efficiency gaining for the public sector, and what are the costs of favoritism toward politically connected firms? Exploiting detailed data on firm representatives’ political affiliations in the Czech Republic, we find that favoritism toward politically connected firms increases the price of procurement contracts by 6 percent of the estimated costs, while no gains in terms of quality are generated. Interestingly, these adverse effects of political connections are mitigated by additional oversight from a higher level of the government because they are cofunded by the European Union. On the basis of our estimates, total procurement expenditures increased by .36 percent owing to favoritism.

Original language	English
Pages (from-to)	445-477
Number of pages	33
Journal	Journal of Law and Economics
Volume	67
Issue number	2
DOIs	https://doi.org/10.1086/727793
Publication status	Published - May 2024

Bibliographical note

Publisher Copyright:
© 2024 by The University of Chicago. All rights reserved.

Funding

Bruno Bar\u00E1nek conducted this research while at Princeton University. Titl also gratefully acknowledges financial support from the Research Foundation\u2013Flanders (grants G068518N and V411520N_A) and the European Research Council (project DemoTrans, grant 101059288) and would like to thank the Innocenzo Gasparini Institute for Economic Research at Bocconi University and the Department of Economics at Princeton University for their hospitality. Finally, we would like to thank Datlab for providing us with excellent data. A previous version of this paper appeared as the second chapter in the dissertation of Bar\u00E1nek. Titl is also at the Faculty of Law, Charles University, and Faculty of Economics and Business, KU Leuven.We gratefully acknowledge insightful comments and suggestions from Stefano Baratuche, Gianmarco Daniele, Francesco Decarolis, Ray Fisman, Thomas Fujiwara, Benny Geys, Leonardo Giuffrida, Kate Ho, Jakub Kastl, Vasily Korovkin, Ilyana Kuziemko, Deni Mazrekaj, Mas-simo Morelli, Paolo Pinotti, Gregory Sasso, David Schoenherr, Andrey Tkachenko, and Kristof De Witte; participants of seminars at Bocconi University, the Center for Economic Research and Graduate Education\u2013Economics Institute, Groningen University, KU Leuven, Princeton University, Utrecht University, and the Leibniz Center for European Economic Research; and conference participants at the 2018 Annual Congress of the European Economic Association, the 2018 meeting of the European Public Choice Society, the 2018 Royal Economic Society Symposium of Junior Researchers, and Journ\u00E9es Louis-Andr\u00E9 G\u00E9rard-Varet 2019. Bruno Bar\u00E1nek conducted this research while at Princeton University. Titl also gratefully acknowledges financial support from the Research Foundation\u2013Flanders (grants G068518N and V411520N_A) and the European Research Council (project DemoTrans, grant 101059288) and would like to thank the Innocenzo Gasparini Institute for Economic Research at Bocconi University and the Department of Economics at Princeton University for their hospitality. Finally, we would like to thank Datlab for providing us with excellent data. A previous version of this paper appeared as the second chapter in the dissertation of Bar\u00E1nek.

Funders	Funder number
Princeton University
American Institute for Economic Research
Elucida Research	V411520N_A, G068518N
National Council for Eurasian and East European Research	101059288

Access to Document

10.1086/727793

727793Final published version, 457 KBLicence: CC BY

Cite this

@article{8ae914f0beb84807b0053c0c9b20bd64,

title = "The Cost of Favoritism in Public Procurement",

abstract = "Are political connections in public procurement harmful or efficiency gaining for the public sector, and what are the costs of favoritism toward politically connected firms? Exploiting detailed data on firm representatives{\textquoteright} political affiliations in the Czech Republic, we find that favoritism toward politically connected firms increases the price of procurement contracts by 6 percent of the estimated costs, while no gains in terms of quality are generated. Interestingly, these adverse effects of political connections are mitigated by additional oversight from a higher level of the government because they are cofunded by the European Union. On the basis of our estimates, total procurement expenditures increased by .36 percent owing to favoritism.",

author = "Bruno Baranek and Vitezslav Titl",

year = "2024",

month = may,

doi = "10.1086/727793",

language = "English",

volume = "67",

pages = "445--477",

journal = "Journal of Law and Economics",

issn = "0022-2186",

publisher = "University of Chicago Press",

number = "2",

}

TY - JOUR

T1 - The Cost of Favoritism in Public Procurement

AU - Baranek, Bruno

AU - Titl, Vitezslav

PY - 2024/5

Y1 - 2024/5

N2 - Are political connections in public procurement harmful or efficiency gaining for the public sector, and what are the costs of favoritism toward politically connected firms? Exploiting detailed data on firm representatives’ political affiliations in the Czech Republic, we find that favoritism toward politically connected firms increases the price of procurement contracts by 6 percent of the estimated costs, while no gains in terms of quality are generated. Interestingly, these adverse effects of political connections are mitigated by additional oversight from a higher level of the government because they are cofunded by the European Union. On the basis of our estimates, total procurement expenditures increased by .36 percent owing to favoritism.

AB - Are political connections in public procurement harmful or efficiency gaining for the public sector, and what are the costs of favoritism toward politically connected firms? Exploiting detailed data on firm representatives’ political affiliations in the Czech Republic, we find that favoritism toward politically connected firms increases the price of procurement contracts by 6 percent of the estimated costs, while no gains in terms of quality are generated. Interestingly, these adverse effects of political connections are mitigated by additional oversight from a higher level of the government because they are cofunded by the European Union. On the basis of our estimates, total procurement expenditures increased by .36 percent owing to favoritism.

UR - https://www.scopus.com/pages/publications/85192520056

U2 - 10.1086/727793

DO - 10.1086/727793

M3 - Article

SN - 0022-2186

VL - 67

SP - 445

EP - 477

JO - Journal of Law and Economics

JF - Journal of Law and Economics

IS - 2

ER -

The Cost of Favoritism in Public Procurement

Abstract

Bibliographical note

Funding

Access to Document

Other files and links

Fingerprint

Cite this