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The Cost of Favoritism in Public Procurement

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  • Bruno Baránek
  • Vítězslav Titl

Abstract

Are political connections in public procurement harmful or efficiency gaining for the public sector, and what are the costs of favoritism toward politically connected firms? Exploiting detailed data on firm representatives’ political affiliations in the Czech Republic, we find that favoritism toward politically connected firms increases the price of procurement contracts by 6 percent of the estimated costs, while no gains in terms of quality are generated. Interestingly, these adverse effects of political connections are mitigated by additional oversight from a higher level of the government because they are cofunded by the European Union. On the basis of our estimates, total procurement expenditures increased by .36 percent owing to favoritism.

Suggested Citation

  • Bruno Baránek & Vítězslav Titl, 2024. "The Cost of Favoritism in Public Procurement," Journal of Law and Economics, University of Chicago Press, vol. 67(2), pages 445-477.
    • Handle: RePEc:ucp:jlawec:doi:10.1086/727793
    DOI: 10.1086/727793
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    Cited by:

    1. J. Atsu Amegashie, 2024. "Rules, Discretion, Corruption, and Efficient Sole-Sourcing in Procurement," CESifo Working Paper Series 11489, CESifo.
    2. Tukiainen, Janne & Blesse, Sebastian & Bohne, Albrecht & Giuffrida, Leonardo M. & Jääskeläinen, Jan & Luukinen, Ari & Sieppi, Antti, 2024. "What are the priorities of bureaucrats? Evidence from conjoint experiments with procurement officials," Journal of Economic Behavior & Organization, Elsevier, vol. 227(C).
    3. Kris De Jaegher & Michal Šoltés & Vitezslav Titl, 2024. "Easing Renegotiation Rules in Public Procurement: Evidence from a Policy Reform," CESifo Working Paper Series 11603, CESifo.

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