Politics and Procurement: Evidence from Cleaning Contracts

HECER Discussion Paper No. 196

43 Pages Posted: 14 Jan 2008 Last revised: 13 Aug 2009

See all articles by Ari Hyytinen

Ari Hyytinen

University of Jyväskylä

Sofia Lundberg

University of Umea - Department of Economics

Otto Toivanen

Aalto University - Department of Economics; KU Leuven - Faculty of Business and Economics (FBE); CEPR; Helsinki Center of Economic Research (HECER)

Date Written: November 1, 2007

Abstract

We study the effects of politics on public procurement in Swedish municipalities in 1990-98 using data on cleaning services. No procuring municipality committed to a standard auction format or to an explicit scoring rule. Political identity of the governing party is not correlated with the decision to procure, the decision to restrict entry, or the number of invited firms. However, left-wing municipalities are more likely not to invite "in-house firms". In our data, the lowest bidder does not win 58% of the time, and conditional on the lowest bid not winning, the municipalities end up paying a premium of 43%. Our discrete choice analysis shows that while all municipalities are price sensitive, left-wing councils 1.5 as price sensitive as right-wing councils. Conditional on bids, left-wing councils are more likely to choose a local firm. Politics thus matter and affect procurement outcomes.

Keywords: Efficiency, favoritism, politics, public procurement

JEL Classification: H57, D44, P16

Suggested Citation

Hyytinen, Ari and Lundberg, Sofia and Toivanen, Otto, Politics and Procurement: Evidence from Cleaning Contracts (November 1, 2007). HECER Discussion Paper No. 196, Available at SSRN: https://ssrn.com/abstract=1082817 or http://dx.doi.org/10.2139/ssrn.1082817

Ari Hyytinen

University of Jyväskylä ( email )

PO Box 35
Jyväskylä, 40014
Finland

HOME PAGE: http://www.jyu.fi

Sofia Lundberg

University of Umea - Department of Economics ( email )

Umeå University
Umea, SE - 90187
Sweden

Otto Toivanen (Contact Author)

Aalto University - Department of Economics ( email )

PO Box 1210
FI-00101 Helsinki
Finland

KU Leuven - Faculty of Business and Economics (FBE) ( email )

Naamsestraat 69
Leuven, B-3000
Belgium

CEPR ( email )

London
United Kingdom

Helsinki Center of Economic Research (HECER)

FI-00014 Helsinki
Finland

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