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

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  • TANG, Wei
  • WANG, Yuan
  • WU, Jiameng

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)

Suggested Citation

  • TANG, Wei & WANG, Yuan & WU, Jiameng, 2025. "Local favoritism in China's public procurement: Information frictions or incentive distortion?," Journal of Urban Economics, Elsevier, vol. 145(C).
    • Handle: RePEc:eee:juecon:v:145:y:2025:i:c:s009411902400086x
    DOI: 10.1016/j.jue.2024.103716
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    More about this item

    Keywords

    Public procurement; local favoritism; bureaucratic discretion; information frictions; incentive distortion;
    All these keywords.

    JEL classification:

    • H57 - Public Economics - - National Government Expenditures and Related Policies - - - Procurement
    • H77 - Public Economics - - State and Local Government; Intergovernmental Relations - - - Intergovernmental Relations; Federalism
    • H72 - Public Economics - - State and Local Government; Intergovernmental Relations - - - State and Local Budget and Expenditures
    • D73 - Microeconomics - - Analysis of Collective Decision-Making - - - Bureaucracy; Administrative Processes in Public Organizations; Corruption
    • R51 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Regional Government Analysis - - - Finance in Urban and Rural Economies

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