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Political connections and misallocation of procurement contracts: Evidence from Ecuador

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  • Brugués, Felipe
  • Brugués, Javier
  • Giambra, Samuele

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.

Suggested Citation

  • Brugués, Felipe & Brugués, Javier & Giambra, Samuele, 2024. "Political connections and misallocation of procurement contracts: Evidence from Ecuador," Journal of Development Economics, Elsevier, vol. 170(C).
    • Handle: RePEc:eee:deveco:v:170:y:2024:i:c:s0304387824000452
    DOI: 10.1016/j.jdeveco.2024.103296
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    1. J. Atsu Amegashie, 2024. "Rules, Discretion, Corruption, and Efficient Sole-Sourcing in Procurement," CESifo Working Paper Series 11489, CESifo.

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    More about this item

    Keywords

    Allocative efficiency; Political connections; Public procurement; Bureaucracy; Production function estimation;
    All these keywords.

    JEL classification:

    • D61 - Microeconomics - - Welfare Economics - - - Allocative Efficiency; Cost-Benefit Analysis
    • D73 - Microeconomics - - Analysis of Collective Decision-Making - - - Bureaucracy; Administrative Processes in Public Organizations; Corruption
    • H57 - Public Economics - - National Government Expenditures and Related Policies - - - Procurement
    • P16 - Political Economy and Comparative Economic Systems - - Capitalist Economies - - - Capitalist Institutions; Welfare State

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