Buyers' Ability and Discretion in Procurement: a Structural Analysis of Italian Medical Devices

Abstract : Using a dataset of medical devices purchased by local Public Buyers (PBs), for each purchase we measure the difference between each item's price and its marginal cost. We define PBs' ability in purchasing as the PBs' fixed effect (FE) on that difference. Average prices vary substantially amongst PBs, and this variation is largely captured by PBs' FE. We then exploit in such dataset the exogenous termination of the mandatory reference price regime to assess how discretion affects procurement performance, given each PB's ability. We found that reduced PBs' discretion determines efficiency gains and losses for low- and high-ability PBs, respec- tively.

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Direct Propagation of a Fiscal Shock: Evidence from Italy’s Stability Pact

Abstract : This paper documents: the channels through which local governments propagate a fiscal shock; and the corresponding reaction by firms in the affected upstream sector (municipal procurement). The shock is provided by an Italian fiscal rule, called Patto di stabilit`a dei comuni, which was tightened unexpectedly in 2008 and applied only to municipalities with population greater than 5,000. Using a difference-in-differences identification strategy, we estimate that this shock led to a 13-20% reduction of infrastructure spending in treated municipalities, or equivalently, an 80% reduction in the average municipality. In contrast, current expenditure was not affected. In the upstream sector, i.e., the infrastructure procurement sector, firms reacted to the demand shock by cutting capital rather than labor. We explore, and ultimately discount, the possibility that our estimates are confounded by the 2008 financial crisis. The capital/investment sector is thus found to be a pre-eminent channel of direct shock propagation. In addition, the fiscal demand shock is found to propagate disproportionately through those private-sector firms that are more exposed to the shocked sector. This finding suggests that direct shock transmission depends on the higher moments of the exposure distribution, beyond the average sectoral exposure that is represented by the input-output linkages. Using procurement-market data we rule out the possibility that our estimates are attenuated by spillover effects operating through competition in the procurement market.

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Can Entry Mitigate the Effect of Inflated Reserve Prices in Public Procurement?

Abstract : Using data from drug procurement auctions in Russia and exploiting exogenous variation induced by two natural experiments, this paper first studies whether bureaucrats abuse their discretionary power when setting the reserve price: the maximum per unit price the government is willing to pay for a given drug. It then asks whether even in the environment characterized by a significant discretionary power of bureaucrats sufficient entry of firms can undo effects of discretion. Obtained results show that reserve prices are at least 8% too high as compared to the optimum: buyers could lower them by this amount, enjoying a one to one decrease in the final price with no increase in the probability of trade not happening. The second set of results indicates that entry can solve the problem of inflated reserve prices: an additional bidder causes prices to de- crease by around 8% to 9%. This effect is highly nonlinear: having more than one bidder versus one bidder causes prices to decrease by around 15% to 18%. Therefore my results suggest that even in an environment where reserve prices are inflated the legislator can undo these effects by ensuring that there are at least 2 participants in a procurement auction.

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