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.