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Subcontracting in Public Procurement: An Empirical Investigation

Author

Listed:
  • Luigi Moretti

    (University of Padova)

  • Paola Valbonesi

    (University of Padova)

Abstract

We have assembled a new dataset and we have empirically investigated the effects of subcontracting on the bidding price in auctions for the awarding of public contracts in Italy. The required qualification for firms aiming to bid for Italian public contracts determines different subcontracting formats: according to this system, bidding firms can be classified as either partially or fully qualified to complete a tendered project. The former are obliged to allocate certain tasks involved in the contract to other qualified firms, giving rise to a ÒmandatoryÓ subcontracting. The latter are free to choose whether or not to subcontract some tasks to similarly qualified firms, adopting an ÒoptionalÓ subcontracting. We find that firms in a position to choose whether to subcontract or not generally offer lower prices than those firms which must proceed with mandatory subcontracts. This result, which holds true after controlling for auction characteristics, firmsÕ fixed effects, and characteristics of the subcontract, indicates that firms apply different prices to different subcontracting strategies in the public procurement supply chain.

Suggested Citation

  • Luigi Moretti & Paola Valbonesi, 2012. "Subcontracting in Public Procurement: An Empirical Investigation," "Marco Fanno" Working Papers 0154, Dipartimento di Scienze Economiche "Marco Fanno".
  • Handle: RePEc:pad:wpaper:0154
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    References listed on IDEAS

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    Cited by:

    1. Decarolis, Francesco & Palumbo, Giuliana, 2015. "Renegotiation of public contracts: An empirical analysis," Economics Letters, Elsevier, vol. 132(C), pages 77-81.
    2. Stefano Galavotti & Luigi Moretti & Paola Valbonesi, 2018. "Sophisticated Bidders in Beauty-Contest Auctions," American Economic Journal: Microeconomics, American Economic Association, vol. 10(4), pages 1-26, November.
    3. Nicola Branzoli & Francesco Decarolis, 2015. "Entry and Subcontracting in Public Procurement Auctions," Management Science, INFORMS, vol. 61(12), pages 2945-2962, December.
    4. Martin Vyklicky & Petr Man & Rudolf Franz Heidu & Radek Jurcík, 2016. "Qualification Requirements for Foreign Suppliers in Public Procurement - Evidence from the Czech Republic," DANUBE: Law and Economics Review, European Association Comenius - EACO, issue 1, pages 19-39, March.

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    More about this item

    Keywords

    regulations for subcontracting in procurement; firms supply chain strategy; public procurement; horizontal (and vertical) subcontracting.;
    All these keywords.

    JEL classification:

    • H57 - Public Economics - - National Government Expenditures and Related Policies - - - Procurement
    • L23 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Organization of Production
    • L24 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Contracting Out; Joint Ventures
    • D44 - Microeconomics - - Market Structure, Pricing, and Design - - - Auctions

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