On Specification and Inference in the Econometrics of Public Procurement

In Paper [I] we use data on Swedish public procurement auctions for internal regular cleaning service contracts to provide novel empirical evidence regarding green public procurement (GPP) and its effect on the potential suppliers’ decision to submit a bid and their probability of being qualified for supplier selection. We find only a weak effect on supplier behavior which suggests that GPP does not live up to its political expectations. However, several environmental criteria appear to be associated with increased complexity, as indicated by the reduced probability of a bid being qualified in the postqualification process. As such, GPP appears to have limited or no potential to function as an environmental policy instrument. In Paper [II] the observation is made that empirical evaluations of the effect of policies transmitted through public procurements on bid sizes are made using linear regressions or by more involved non-linear structural models. The aspiration is typically to determine a marginal effect. Here, I compare marginal effects generated under both types of specifications. I study how a political initiative to make firms less environmentally damaging implemented through public procurement influences Swedish firms’ behavior. The collected evidence brings about a statistically as well as economically significant effect on firms’ bids and costs. Paper [III] embarks by noting that auction theory suggests that as the number of bidders (competition) increases, the sizes of the participants’ bids decrease. An issue in the empirical literature on auctions is which measurement(s) of competition to use. Utilizing a dataset on public procurements containing measurements on both the actual and potential number of bidders I find that a workhorse model of public procurements is best fitted to data using only actual bidders as measurement for competition. Acknowledging that all measurements of competition may be erroneous, I propose an instrumental variable estimator that (given my data) brings about a competition effect bounded by those generated by specifications using the actual and potential number of bidders, respectively. Also, some asymptotic results are provided for non-linear least squares estimators obtained from a dependent variable transformation model. Paper [VI] introduces a novel method to measure bidders’ costs (valuations) in descending (ascending) auctions. Based on two bounded rationality constraints bidders’ costs (valuations) are given an imperfect measurements interpretation robust to behavioral deviations from traditional rationality assumptions. Theory provides no guidance as to the shape of the cost (valuation) distributions while empirical evidence suggests them to be positively skew. Consequently, a flexible distribution is employed in an imperfect measurements framework. An illustration of the proposed method on Swedish public procurement data is provided along with a comparison to a traditional Bayesian Nash Equilibrium approach.