Public sector procurement accounts for approximately 20 percent of GDP in developing countries and 10-15 percent in developed countries. Nearly all activities in which the public sector is involved, from defense to transportation, from education to healthcare, require the public sector to procure construction works, goods and services from private contractors. Moreover, during the recent financial crisis, public procurement has often been invoked as an instrument to sustain demand or even promote growth by fostering innovation.
The proper design of procedures through which procurement takes place is crucial to avoid waste and enhance social welfare. The appropriate selection of contractors clearly plays a prominent role among these procedures and, indeed, a large body of academic and policy research has been devoted to the design of tender awarding rules (Laffont and Tirole, 1993). Preventing corruption and ensuring that the selected contractor will comply with the obligations in its bid are often seen as major goals of a successful awarding procedure.
The roles of corruption and reputation within a procurement system are distinct, but closely connected. Price-based auctions are indeed a transparent mechanism that fosters competition between contractors and, under certain conditions, can be the “optimal” procurement mechanism (Myerson, 1981). Nevertheless, the lack of flexibility in the choice of contractors might imply that a low price at the time of the auction results in a low delivered quality. Past performance of the contractor is thus one of the prominent tools through which contractors can be given the right incentives. The choice of how to integrate reputation within a transparent procedure is, however, not trivial and a poor design can foster corruption and inefficiency. In the US, a major reform in the 1990s, intended to reduce the rigidity of procurement procedures, introduced into the Federal Acquisition Regulations more flexible purchasing methods, similar to private sector practices, among which was the placement of a stronger weight on suppliers' past performance (Kelman, 1990).
This research project has delivered a series of research papers, roughly subdivided into three groups of studies (components) that advance the frontier of our understanding of the economics of public procurement. These three components are as follows:
- Component 1: The Role of Reputation When Awarding Contracts. Projects of this group study how firms respond to the announcement of a switch from price-only auctions to scoring rule auctions weighting past performance.
- Component 2: Corruption in Procurement Auctions: Detection, Effects and Remedies. This part develops new measurements of corruption risk in procurement and quantifies its presence across different awarding methods.
- Component 3: A Welfare Analysis of Healthcare Procurement Regulations: The Case of Medical Devices. This part analyses the public procurement of medical devices in Europe with a special emphasis on the interaction between the market structure and procurement outcomes.
The findings in the different research paper are of major relevance for the progress of research in both public and private procurement as well as for policy, especially in the EU.
