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Effect of public procurement regulation on competition and cost-effectiveness

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Abstract

This study empirically investigates the impact of public procurement regulation quality on the competition for tenders and the cost-effectiveness of awarded contracts, by employing the World Bank’s Benchmarking Public Procurement and EuroPAM Public Procurement quality scores. Using extensive data on public procurement in the European Economic Area, Switzerland, and Macedonia, the analysis in this paper shows that higher quality public procurement regulatory regimes are associated with higher levels of competition and cost-effectiveness. Improved regulation quality significantly increases the number of bidders and the probability that the procurement price is lower than the estimated cost.

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Notes

  1. The African Investor Survey (AIS), which is administered by the United Nations Industrial Development Organization.

  2. EuroPAM questionnaire about public procurement is available at http://europam.eu/data/in-law%20indicators/EuroPAM%20Public%20Procurement%20indicator%20list.pdf.

  3. EuroPAM public procurement indicator list is available online at http://europam.eu/data/in-law%20indicators/EuroPAM%20Public%20Procurement%20indicator%20list.pdf. The details of the scoring methodology are available online at http://europam.eu/data/in-law%20indicators/EuroPAM%20scoring%20for%20Public%20Procurement.pdf.

  4. The BPP does not calculate public procurement scores for Malta. Whereas, EuroPAM does not calculate public procurement scores for Macedonia FYR. Tables OA.4 and OA.5 in the Online Appendix display the BPP and EuroPAM scores for each country.

  5. I use the contact award notices csv files. The files are available at https://data.europa.eu/euodp/data/dataset/ted-csv.

  6. The standard forms prescribed by the EU are available at http://simap.ted.europa.eu/web/simap/standard-forms-for-public-procurement.

  7. Common Procurement Vocabulary (CPV) establishes a single classification system for public procurement aimed at standardizing the references used by contracting authorities and entities to describe the subject of procurement contracts.

  8. Values larger than 50 (2%) are not displayed for the sake of brevity.

  9. 44 contracts have 999 bidders.

  10. Djankov et al. (2017) does not have public procurement regulation scores for Liechtenstein and Malta. The TED data set contains 311 contracts for Liechtenstein and 2518 for Malta.

  11. Rigobon and Sack (2003) used a similar identification technique to assess the reaction of monetary policy to the stock market. Lewbel (2012) generalizes this identification technique. Accordingly, it can be applied to datasets with different structures, including the TED data set. The method developed by Lewbel (2012) identifies structural parameters by constructing instruments as functions of the model’s data when valid instrumental variables do not exist. This approach provides an unbiased and consistent estimate of parameters when the regression model contains endogenous or mismeasured regressors, or when it suffers from the omitted-variable bias. The Monte Carlo results and numerous empirical applications presented in Lewbel (2012) show that the estimator works very well compared to the two-stage least squares method and to GMM when suitable instrumental variables are not available. The methodology uses the heteroscedasticity of the errors to construct valid IVs; further, consistent and unbiased parameters of the empirical model can be estimated by employing these IVs in an IV-GMM setting.

  12. Baldi et al. (2016) implement the HB-IV methodology of Lewbel (2012) in a linear probability model regression setting. They study the effect of project complexity and corruption on the selection of procurement procedure in 11,400 public procurement contracts in Italy during 2007–2012.

  13. I employ year fixed effects in these regressions.

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  1. Department of Economics, TOBB ETU, Sogutozu cad. no. 43, Sogutozu, Ankara, Turkey

    Bedri Kamil Onur Tas

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Correspondence to Bedri Kamil Onur Tas.

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The first version of the paper was written when I was a Jean Monnet Research Fellow at the EUI Robert Schuman Centre for Advanced Studies (RSCAS). I am grateful for the hospitality of the EUI RSCAS.

Tas (2020) contains the online appendix. Online Appendix is available at http://ssrn.com/abstract=3607128.

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Tas, B.K.O. Effect of public procurement regulation on competition and cost-effectiveness. J Regul Econ 58, 59–77 (2020). https://doi.org/10.1007/s11149-020-09409-w

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