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

  • Oriana Bandiera
  • Andrea Prat
  • Tommaso Valletti

We propose a distinction between active and passive waste as determinants of the cost of public services. Active waste entails utility for the public decision maker, whereas passive waste does not. We analyze purchases of standardized goods by Italian public bodies and exploit a policy experiment associated with a national procurement agency. We find that: (i) some public bodies pay systematically more than others for equivalent goods; (ii) differences are correlated with governance structure; (iii) the variation in prices is principally due to variation in passive rather than active waste; and (iv) passive waste accounts for 83 percent of total estimated waste. (JEL H11, H57, H83)

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Article provided by American Economic Association in its journal American Economic Review.

Volume (Year): 99 (2009)
Issue (Month): 4 (September)
Pages: 1278-1308

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Handle: RePEc:aea:aecrev:v:99:y:2009:i:4:p:1278-1308
Note: DOI: 10.1257/aer.99.4.1278
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