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Individuals and Organizations as Sources of State Effectiveness, and Consequences for Policy

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  • Michael Carlos Best
  • Jonas Hjort
  • David Szakonyi

Abstract

How much of the variation in state effectiveness is due to the individuals and organizations responsible for implementing policy? We investigate this question and its implications for policy design in the context of public procurement, using a text-based product classification method to measure bureaucratic output. We show that effective procurers lower bid preparation/submission costs, and that 60% of within-product purchase-price variation across 16 million purchases in Russia in 2011-2015 is due to the bureaucrats and organizations administering procurement processes. This has dramatic policy consequences. To illustrate these, we study a ubiquitous procurement policy: bid preferences for favored firms (here domestic manufacturers). The policy decreases overall entry and increases prices when procurers are effective, but has the opposite impact with ineffective procurers, as predicted by a simple endogenous-entry model of procurement. Our results imply that the state’s often overlooked bureaucratic tier is critical for effectiveness and the make-up of optimal policies.

Suggested Citation

  • Michael Carlos Best & Jonas Hjort & David Szakonyi, 2017. "Individuals and Organizations as Sources of State Effectiveness, and Consequences for Policy," NBER Working Papers 23350, National Bureau of Economic Research, Inc.
  • Handle: RePEc:nbr:nberwo:23350 Note: DEV PE POL PR
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    References listed on IDEAS

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    1. Benjamin Bridgman & Georg Duernecker & Berthold Herrendorf, 2015. "Structural Transformation, Marketization, and Household Production around the World," BEA Working Papers 0128, Bureau of Economic Analysis.
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    4. Rupert, Peter & Rogerson, Richard & Wright, Randall, 1995. "Estimating Substitution Elasticities in Household Production Models," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 6(1), pages 179-193, June.
    5. Mark Aguiar & Erik Hurst, 2007. "Life-Cycle Prices and Production," American Economic Review, American Economic Association, vol. 97(5), pages 1533-1559, December.
    6. Johannes Stroebel & Joseph Vavra, 2014. "House Prices, Local Demand, and Retail Prices," NBER Working Papers 20710, National Bureau of Economic Research, Inc.
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    Cited by:

    1. Barbosa, Klenio & Straub, Stéphane, 2017. "The Value of Revolving Doors in Public Procurement," TSE Working Papers 17-873, Toulouse School of Economics (TSE).

    More about this item

    JEL classification:

    • H11 - Public Economics - - Structure and Scope of Government - - - Structure and Scope of Government
    • O2 - Economic Development, Innovation, Technological Change, and Growth - - Development Planning and Policy

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