Small business set-asides in procurement auctions: An empirical analysis
AbstractAs part of public procurement, many governments adopt small business programs to provide contract opportunities for businesses often with preferences for firms operated by members of groups designated as disadvantaged. The redistribution arising from such programs, however, can introduce significant additional costs to government procurement budgets. In this paper, the extent to which small business set-asides increased government procurement costs is examined. The estimates employ data on Japanese public construction projects, where approximately half of the procurement budget is set aside for small and medium enterprises (SMEs). Applying a positive relationship between profitability and firm size obtained by the nonparametric estimation of an asymmetric first-price auction model with affiliated private values, a counterfactual analysis is undertaken to demonstrate that approximately 40percent of SMEs would exit the procurement market if set-asides were removed. Surprisingly, the resulting lack of competition would increase government procurement costs more than it would offset the production cost inefficiency.
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Bibliographic InfoArticle provided by Elsevier in its journal Journal of Public Economics.
Volume (Year): 100 (2013)
Issue (Month): C ()
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Web page: http://www.elsevier.com/locate/inca/505578
Procurement auctions; Small business set-asides; Nonparametric estimation;
Other versions of this item:
- Jun Nakabayashi, 2009. "Small Business Set-asides in Procurement Auctions: An Empirical Analysis," Tsukuba Economics Working Papers 2009-005, Economics, Graduate School of Humanities and Social Sciences, University of Tsukuba, revised Nov 2009.
- Jun Nakabayashi, 2010. "Small Business Set-asides in Procurement Auctions: An Empirical Analysis," Global COE Hi-Stat Discussion Paper Series gd09-126, Institute of Economic Research, Hitotsubashi University.
- D44 - Microeconomics - - Market Structure and Pricing - - - Auctions
- H23 - Public Economics - - Taxation, Subsidies, and Revenue - - - Externalities; Redistributive Effects; Environmental Taxes and Subsidies
- H57 - Public Economics - - National Government Expenditures and Related Policies - - - Procurement
- L74 - Industrial Organization - - Industry Studies: Primary Products and Construction - - - Construction
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