Targeted bidders in government tenders

Matilde Cappelletti and Leonardo M. Giuffrida

No 22-030, ZEW Discussion Papers from ZEW - Leibniz Centre for European Economic Research

Abstract: A set-aside restricts participation in procurement contests to targeted firms. Despite being widely used, its effects on actual competition and contract outcomes are ambiguous. We pool a decade of US federal procurement data to shed light on this empirical question using a two-stage approach. To circumvent the lack of exogenous variation in our data, as a first step we draw on random forest techniques to calculate the likelihood of a tender being set aside. We then estimate the effect of restricted tenders on pre- and postaward outcomes using an inverse probability weighting regression adjustment. Set-asides prompt more firms to bid - that is, the increase in targeted bidders more than offsets the loss of untargeted. During the execution phase, set-aside contracts incur higher cost overruns and delays. The more restrictive the setaside, the stronger these effects. In a subset of our data we leverage an expected spike in set-aside spending and we find no evidence of better performance by winners over a ten-year period.

Keywords: small businesses; set-aside; competition; procurement; public contracts; random forest; firm dynamics (search for similar items in EconPapers)
JEL-codes: D22 H32 H57 L25 (search for similar items in EconPapers)
Date: 2022
New Economics Papers: this item is included in nep-big and nep-cta
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (5)

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Persistent link: https://EconPapers.repec.org/RePEc:zbw:zewdip:22030

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