Winning by Default: Why is There So Little Competition in Government Procurement?

Karam Kang and Robert A Miller

The Review of Economic Studies, 2022, vol. 89, issue 3, 1495-1556

Abstract: Government procurement contracts rarely have many bids, often only one. Motivated by the institutional features of federal procurement, this article develops a principal-agent model where a buyer seeks sellers at a cost and negotiates contract terms with them. The model is identified and estimated with data on IT and telecommunications contracts. We find the benefits of drawing additional sellers are significantly reduced because the procurement agency can extract informational rents from sellers. Another factor explaining the small number of bids is that sellers are relatively homogeneous, conditional on observed project attributes. Administrative hurdles and corruption appear to play very limited roles.

Keywords: Procurement; Auction; Negotiation; Endogenous competition; Principal-agent model; Contract menu; Semi-parametric identification; Structural estimation; H57; C57 (search for similar items in EconPapers)
Date: 2022
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Citations: View citations in EconPapers (26)

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Persistent link: https://EconPapers.repec.org/RePEc:oup:restud:v:89:y:2022:i:3:p:1495-1556.

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