Political connections and misallocation of procurement contracts: Evidence from Ecuador

Felipe Brugués, Javier Brugués and Samuele Giambra

Journal of Development Economics, 2024, vol. 170, issue C

Abstract: We use new administrative data from Ecuador to study the welfare effects of the misallocation of procurement contracts caused by political connections. We show that firms that form links with the bureaucracy through their shareholders experience an increased probability of being awarded a government contract. We develop a novel sufficient statistic – the average gap in revenue productivity and capital share of revenue – to measure the efficiency effects, in terms of input utilization, of political connections. Our framework allows for heterogeneity in quality, productivity, and non-constant marginal costs. We estimate political connections create welfare losses ranging from 2 to 6% of the procurement budget.

Keywords: Allocative efficiency; Political connections; Public procurement; Bureaucracy; Production function estimation (search for similar items in EconPapers)
JEL-codes: D61 D73 H57 P16 (search for similar items in EconPapers)
Date: 2024
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:deveco:v:170:y:2024:i:c:s0304387824000452

DOI: 10.1016/j.jdeveco.2024.103296

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