Economic Effects of Democracy. An Empirical Analysis

This research analyses through the use of instrumental variables estimation whether democracy has an effect on variables belonging to three different categories: fiscal policy, inequality in income distribution and political instability. It shows there is no stable relation between democracy and fiscal policy variables between countries of the sample in the 1978-1988 period. Democracy, on the other hand, significantly affects the difference in middle class income share (positively) and in changes at the top of the executive (negatively).

When the highest bidder loses the auction: theory and evidence from public procurement

In this paper I study two methods often used in public procurement to deal with the risk that the winning bidder may default on his bid: augmenting the standard first price auction with an ex-post verification of the responsiveness of the bids and using an average bid auction. I show that when penalties for defaulting are asymmetric across bidders and when their valuations are characterized by a predominant common component, the average bid auction is preferred over the standard first price by an auctioneer when the costs due to the winner's bankruptcy are high enough. Depending on the cost of the ex-post verification, the average bid auction can be dominated by the first price with monitoring. I use a new dataset of Italian public procurement auctions, run alternately using a form of the average bid auction or the augmented first price, to structurally estimate the bids' verification cost, the firms' mark up and the inefficiency generated by the average bid auctions.auctions, public procurement, collusion, structural estimation

Auctions that are too good to be true

Auctions are supposed to procure the best deal money can buy. Yet, practitioners who procure complex contracts by auction are well aware of some basic pitfalls. One concern is that winning bids may not reflect the quality of the bidder but strategic behavior like low-balling bids or underestimating costs. Such behavior may then lead to demands for contract renegotiation by the winning bidder that are hard to resist. The problem plagues complex contracts for civil works or equipment as well as contracts for various types of public-private partnerships. In 1993 two engineering professors proposed a bidding scheme that aims at preventing excessively low bids. Effectively they developed a way to disqualify bids that are “too good to be true”. Several countries, including Colombia, Italy, China, Chile, Japan, Peru and Taiwan have adopted such auction schemes. However, it turns out that the new auctions give rise to new forms of strategic bidding behavior, which create even bigger problems2. Altogether, the new auctions seem to be “too good to be true”. Using standard procedures like first price sealed bid auctions remains best practice as long as well-established disciplines for pre-qualification and control of post-bid behavior are maintained

Marketing Agencies and Collusive Bidding in Online Ad Auctions

The transition of the advertising market from traditional media to the internet has induced a proliferation of marketing agencies specialized in bidding in the auctions that are used to sell ad space on the web. We analyze how collusive bidding can emerge from bid delegation to a common marketing agency and how this can undermine the revenues and allocative efficiency of both the Generalized Second Price auction (GSP, used by Google and Microsoft-Bing and Yahoo!) and the of VCG mechanism (used by Facebook). We find that, despite its well-known susceptibility to collusion, the VCG mechanism outperforms the GSP auction both in terms of revenues and efficiency

The awarding of public works in Italy: an analysis of the mechanisms for the selection of contractors

Despite successive reforms, public procurement in Italy is still highly fragmented and vulnerable to collusion, corruption and ex-post renegotiation. Other defects are found in the planning stages of the works. These problems are due in part to the regulations on the awarding of public works contracts, which do not guarantee the correct functioning of the selection mechanisms. Indications from the economic literature and international comparisons suggest a series of possible improvements: i) the elimination of automatic exclusion mechanisms for anomalous tenders (which would reduce the risk of collusion between bidders); ii) the centralization of assessments of anomalous offers under the responsibility of larger adjudicating authorities, with an increase in the surety guarantees provided by the winner, to reduce the risk of subsequent renegotiations; iii) stronger anti-corruption measures; iv) more standardized planning and, for the more complex auctions, competitive dialogue.infrastructure, auctions, regulation

Renegotiation of Public Contracts: An Empirical Analysis

Abstract We exploit a large dataset of contracts for public works awarded in Italy between 2000 and 2007 to document two empirical facts about time and cost renegotiations. First, although both types of renegotiations are systematic, their correlation is nearly zero. Second, several factors typically suggested to explain renegotiations have different, and in certain cases opposite, effects on price and time renegotiations. Moreover, the estimates confirm that, as suggested by the literature, the type of awarding procedures and the complexity of the job are associated with renegotiations, but they also provide evidence in favor of an important role for the linkage between the project design stage and renegotiations during the project execution. JEL: L22, L74, D44, D82, H57

Appalti e corruzione: alcune evidenze sulla penetrazione criminale negli appalti di lavori

Sommario: 1. Premessa. – 2. Costruzione dataset e nuove misure di criminalità negli ap- palti. – 3. Evoluzione del contesto normativo e descrizione dei meccanismi di sele- zione dei contraenti privati. – 4. Analisi descrittiva. – 5. Metodologia econometri- ca. – 6. Risultati. – 7. Conclusioni e suggerimenti di policy

Rules, discretion, and corruption in procurement: evidence from Italian Government contracting

The benefits of bureaucratic discretion depend on the extent to which it is used forpublic benefit versus exploited for private gain. We study the relationship between discretion and corruption in Italian government procurement auctions, using a confidential database of firms and procurement officials investigated for corruption by Italian enforcement authorities. We show that discretionary procedure auctions (those awarded based onnegotiated rather than open bidding) are associated with corruption only when accompanied by limits to competition. We further show that, while these “corruptible” discretionary auctions are chosen more often by officials who are themselves investigated for corruption,they are used less often in procurement administrations in which at least one official is investigated for corruption. These findings fit with a framework in which more discretion leads to greater efficiency as well as more opportunities for theft, and a central monitor manages this trade-off by limiting discretion for high-corruption procedures and locales. Overall, our results suggest that competition may allow procurement authorities to extractthe benefits of discretion while limiting the resultant risks of abuse

Bureaucratic competence and procurement outcomes

To what extent does a more competent public bureaucracy contribute to better economic outcomes? We address this question in the context of the US federal procurement of services and works, by combining contract-level data on procurement performance and bureau-level data on competence and workforce characteristics. We use the death occurrences of specific types of employees as instruments and find that an increase in bureau competence causes a significant and economically important reduction in: i) time delays, ii) cost overruns, and iii) number of renegotiations. Cooperation within the office appears to be a key driver of the findings

Bid Coordination in Sponsored Search Auctions: Detection Methodology and Empirical Analysis

Bid delegation to specialized intermediaries is common in the auction systems used to sell internet advertising. When the same intermediary concentrates the demand for ad space from competing advertisers, its incentive to coordinate client bids might alter the functioning of the auctions. This study develops a methodology to detect bid coordination, and presents a strategy to estimate a bound on the search engine revenue losses imposed by coordination relative to a counterfactual benchmark of competitive bidding. Using proprietary data from auctions held on a major search engine, coordination is detected in 55 percent of the cases of delegated bidding that we observed, and the associated upper bound on the search engine’s revenue loss ranges between 5.3 and 10.4 percent