“Can the Private Sector Ensure the Public Interest? Evidence from Federal Procurement”

with Rovigatti, G.

We empirically investigate the effect of oversight on contract outcomes in public procurement. In particular, we stress a distinction between public and private oversight: the former is a set of bureaucratic checks enacted by contracting offices, while the latter is carried out by private insurance companies whose money is at stake through the so-called performance bonding. By focusing on the U.S. federal service contracts in the period 2005-2015, we exploit an exogenous variation in the threshold for the application of both sources of oversight in order to separately estimate their causal effects on execution costs and time. We find that: (i) private oversight has a positive effect on outcomes through the screening of bidders that alters the pool of winning firms; (ii) public oversight negatively affects outcomes, due to excessive red tape imposed by low-competence buyers.

Keywords: Oversight, Procurement, Screening, Red tape, Moral hazard.

JEL Classification: D21, D44, D82; H57; L74