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Indirect Savings from Public Procurement Centralization

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Abstract

An influential study by Bandiera, Prat and Valletti (2009) exploits the introduction of a central purchasing agency in Italy to identify the amount and sources of public waste. Among other findings, it estimates that purchasing through a central agency directly saves 28% on prices. We find that centralized prices also have significant indirect effects, leading to a 17.7% reduction among non-centralized ones. The indirect effects of centralization appear driven by informational externalities – rather than an improved outside option – on less competent public buyers purchasing more complex goods. Accounting for indirect savings also increases the estimate of direct ones.

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  • Clarissa Lotti & Giancarlo Spagnolo, 2022. "Indirect Savings from Public Procurement Centralization," CEIS Research Paper 532, Tor Vergata University, CEIS, revised 01 Feb 2022.
    • Handle: RePEc:rtv:ceisrp:532
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    1. Dubois, Pierre & Lefouili, Yassine & Straub, Stéphane, 2021. "Pooled procurement of drugs in low and middle income countries," European Economic Review, Elsevier, vol. 132(C).
    2. Clark, Robert & Coviello, Decio & de Leverano, Adriano, 2021. "Centralized procurement and delivery times: Evidence from a natural experiment in Italy," ZEW Discussion Papers 21-063, ZEW - Leibniz Centre for European Economic Research.
    3. Mark E. Doms & Wendy F. Dunn & Stephen D. Oliner & Daniel E. Sichel, 2004. "How Fast Do Personal Computers Depreciate? Concepts and New Estimates," NBER Chapters, in: Tax Policy and the Economy, Volume 18, pages 37-80, National Bureau of Economic Research, Inc.
    4. Francesco Decarolis & Leonardo M Giuffrida & Elisabetta Iossa & Vincenzo Mollisi & Giancarlo Spagnolo, 2020. "Bureaucratic Competence and Procurement Outcomes [“Politics and Economics in Weak and Strong States]," The Journal of Law, Economics, and Organization, Oxford University Press, vol. 36(3), pages 537-597.
    5. Decarolis, Francesco, 2018. "Procurement Centralization in the EU: the Case of Italy," CEPR Discussion Papers 12567, C.E.P.R. Discussion Papers.
    6. Michael Carlos Best & Jonas Hjort & David Szakonyi, 2023. "Individuals and Organizations as Sources of State Effectiveness," American Economic Review, American Economic Association, vol. 113(8), pages 2121-2167, August.
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    8. Alexandre Belloni & Victor Chernozhukov & Christian Hansen, 2014. "High-Dimensional Methods and Inference on Structural and Treatment Effects," Journal of Economic Perspectives, American Economic Association, vol. 28(2), pages 29-50, Spring.
    9. Olga Chiappinelli, 2020. "Decentralization And Public Procurement Performance: New Evidence From Italy," Economic Inquiry, Western Economic Association International, vol. 58(2), pages 856-880, April.
    10. Francesco Decarolis & Gaétan de Rassenfosse & Leonardo M. Giuffrida & Elisabetta Iossa & Vincenzo Mollisi & Emilio Raiteri & Giancarlo Spagnolo, 2021. "Buyers' role in innovation procurement: Evidence from US military R&D contracts," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 30(4), pages 697-720, November.
    11. Ricardo Alonso & Wouter Dessein & Niko Matouschek, 2008. "When Does Coordination Require Centralization?," American Economic Review, American Economic Association, vol. 98(1), pages 145-179, March.
    12. Oriana Bandiera & Andrea Prat & Tommaso Valletti, 2009. "Active and Passive Waste in Government Spending: Evidence from a Policy Experiment," American Economic Review, American Economic Association, vol. 99(4), pages 1278-1308, September.
    13. Oriana Bandiera & Michael Carlos Best & Adnan Qadir Khan & Andrea Prat, 2021. "The Allocation of Authority in Organizations: A Field Experiment with Bureaucrats," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 136(4), pages 2195-2242.
    14. Bucciol, Alessandro & Camboni, Riccardo & Valbonesi, Paola, 2020. "Purchasing medical devices: The role of buyer competence and discretion," Journal of Health Economics, Elsevier, vol. 74(C).
    15. Ricardo Alonso & Wouter Dessein & Niko Matouschek, 2008. "When Does Coordination Require Centralization? Corrigendum," American Economic Review, American Economic Association, vol. 98(3), pages 1195-1196, June.
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    1. Martinez-Carrasco, José & ConceiçaÞo, Otavio & Dezolt, Ana Lúcia, 2023. "More Information, Lower Price? Access Market-based Reference Prices and Gains in Public Procurement Efficiency," IDB Publications (Working Papers) 12754, Inter-American Development Bank.

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    More about this item

    Keywords

    Centralization; Informational externalities; Procurement; Public Contracts;
    All these keywords.

    JEL classification:

    • D44 - Microeconomics - - Market Structure, Pricing, and Design - - - Auctions
    • H11 - Public Economics - - Structure and Scope of Government - - - Structure and Scope of Government
    • H57 - Public Economics - - National Government Expenditures and Related Policies - - - Procurement
    • H83 - Public Economics - - Miscellaneous Issues - - - Public Administration
    • L38 - Industrial Organization - - Nonprofit Organizations and Public Enterprise - - - Public Policy
    • L88 - Industrial Organization - - Industry Studies: Services - - - Government Policy

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