Building Political Collusion: Evidence from Procurement Auctions

45 Pages Posted: 29 Jun 2010

See all articles by Decio Coviello

Decio Coviello

HEC Montreal

Stefano Gagliarducci

University of Rome, Tor Vergata - Faculty of Economics; Einaudi Institute for Economics and Finance (EIEF); IZA Institute of Labor Economics

Abstract

We investigate the relationship between the time politicians stay in office and the functioning of public procurement. To this purpose, we collect a data set on the Italian municipal governments and all the procurement auctions they administered between 2000 and 2005. Identification is achieved through the introduction of a two-term limit for the mayor in March 1993: since elections were not coordinated across cities, and previous terms were not counted in the limit, mayors appointed right before the reform could be reelected for two additional terms, while the others for one only. Our primary finding is that one extra term in office deteriorates public spending. In fact, it decreases the number of bidders and, most importantly, the winning rebate. Interestingly, we also find that the probability that the same firm is awarded more auctions, or that the winning firm is local, increases with time in office. These results are compatible with the predictions of a model of favoritism in repeated procurement auctions, where time reveals collusive types, thus increasing the value of illegal connections at the expense of higher procurement costs.

Keywords: procurement auction, collusion, public works, time in office

JEL Classification: D44, D72, D73, H57, H70

Suggested Citation

Coviello, Decio and Gagliarducci, Stefano, Building Political Collusion: Evidence from Procurement Auctions. IZA Discussion Paper No. 4939, Available at SSRN: https://ssrn.com/abstract=1631074

Decio Coviello (Contact Author)

HEC Montreal ( email )

3000, chemin de la Cote-Saint-Catherine,
montreal, Quebec H2V3P7
Canada

Stefano Gagliarducci

University of Rome, Tor Vergata - Faculty of Economics ( email )

Via Columbia n.2
Rome, rome 00100
Italy

HOME PAGE: http://https://sites.google.com/site/stefanogagliarducci/

Einaudi Institute for Economics and Finance (EIEF) ( email )

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Rome, 00187
Italy

IZA Institute of Labor Economics ( email )

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Bonn, D-53072
Germany

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