Court Efficiency and Procurement Performance
Abstract: Contracts are a good deterrent for opportunistic behavior only insofar they are credibly and effectively enforced by the direct application their rules and the functioning of the judicial system. We study the effects of local courts’ inefficiency - i.e. the court average length in ending a trial - on contractors’ incentives to delay public works in Italy, a setting where disputes on penalty for delay public procurement contracts are solved in local court. We first present a simple model showing how courts’ inefficiency may lead public buyers to refrain for enforcing penalties for late delivery in the aim to avoid the costly dispute in court of the claim filed by the contractor. Then we discuss our empirical results showing that in provinces where local court are inefficient, i) public works are delivered with higher delay, and this is stronger for higher value - i.e. complex - project; ii) the contract are awarded to larger firm, and iii) on average, a higher share of final payment higher is adopted. These results are not driven by omitted environmental variables, since we show that the delays in contracts' delivery are still affected by courts efficiency when province fixed effect are included in the model.
