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Active and Passive Waste in Government Spending: Evidence from a Policy Experiment

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We propose a distinction between active waste and passive waste as determinants of the cost of public services. Active waste entails utility for the public decision maker (as in the case of bribery) whereas passive waste does not (as in the case of ineffciency due to red tape). To assess the empirical relevance of both forms of waste, we analyze purchases of standardized goods by Italian public bodies and exploit a policy experiment associated with a national procurement agency. A revealed preference argument implies that if public bodies with higher costs are more likely to buy from the procurement agency rather than from traditional suppliers, cost differences are more likely to be due to passive waste. We find that: (i) Some public bodies pay systematically more than others for observationally equivalent goods and such price differences are sizeable; (ii) Differences are correlated with governance structure: the central administration pays at least 22% more than semi-autonomous agencies (local government is at an intermediate level); (iii) The variation in prices across public bodies is principally due to variation in passive rather than active waste; (iv) Passive waste accounts for 83% of total estimated waste.

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Bibliographic Info

Paper provided by Tor Vergata University, CEIS in its series CEIS Research Paper with number 115.

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Length: 61 pages
Date of creation: 14 Jul 2008
Date of revision: 14 Jul 2008
Handle: RePEc:rtv:ceisrp:115

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Postal: CEIS - Centre for Economic and International Studies - Faculty of Economics - University of Rome "Tor Vergata" - Via Columbia, 2 00133 Roma
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