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Affirmative Action Exemptions and Capacity Constrained Firms

Justin Marion ()

American Economic Journal: Economic Policy, 2017, vol. 9, issue 3, 377-407

Abstract: This paper studies how affirmative action exemptions in public procurement can improve efficiency and government expenditures without harming disadvantaged business enterprise (DBE) utilization. I examine a unique program employed by the Iowa Department of Transportation, where prior to 2013 prime contractors were allowed an exemption from a project's affirmative action requirement if their history of DBE utilization was sufficiently high. I find that prime contractors use the exemption to smooth demands on capacity constrained DBEs, building a history of utilization during low demand periods and exploiting the resulting exemption during high demand. The exemption policy was unexpectedly eliminated in 2013, which I exploit to evaluate its effect on DBE utilization and procurement costs. I find that average DBE utilization was unchanged and bids rose on affirmative action contracts.

JEL-codes: D22 H76 J15 J16 (search for similar items in EconPapers)
Date: 2017
Note: DOI: 10.1257/pol.20150498
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Handle: RePEc:aea:aejpol:v:9:y:2017:i:3:p:377-407