Local favoritism in China's public procurement: Information frictions or incentive distortion?

Wei Tang, Yuan Wang and Jiameng Wu

Journal of Urban Economics, 2025, vol. 145, issue C

Abstract: This paper aims to disentangle the roles of information frictions and career incentives of local officials in the allocation of government contracts. Drawing on a unique dataset including both winning and losing bidders of public procurement auctions in China, we document a strong local bias in the contract allocation. These patterns are hardly reconciled with explanations rooted in information frictions or corruption. Instead, we highlight the role of local leaders’ career incentives, presenting evidence that local favoritism is more pronounced in localities with more incentivized mayors. Our findings prompt a reconsideration of the effectiveness of bureaucratic discretion in allocating public resources. (JEL H57, H77, H72, D73, R51)

Keywords: Public procurement; local favoritism; bureaucratic discretion; information frictions; incentive distortion (search for similar items in EconPapers)
Date: 2025
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Persistent link: https://EconPapers.repec.org/RePEc:eee:juecon:v:145:y:2025:i:c:s009411902400086x

DOI: 10.1016/j.jue.2024.103716

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