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Bid Preferences and Set Asides for Locally Produced Goods: Evidence from Russia

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Traditionally when allocating procurement contracts price has been the main criterion to determine the winner of the contract. On the other hand, recently governments have started to use public procurement as a tool to foster the development of small businesses, domestic producers and other groups (for example organizations employing people with disabilities), which are thought to play an important role in the economy but at the same time face non trivial obstacles to enter the market for public procurement.

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Bid Preferences and Set Asides for Locally Produced Goods: Evidence from Russia

  1. 1. Bid Preferences and Set Asides for Locally Produced Goods: Evidence from Russia Traditionally when allocating procurement contracts price has been the main criterion to determine the winner of the contract. On the other hand, recently governments have started to use public procurement as a tool to foster the development of small businesses, domestic producers and other groups (for example organizations employing people with disabilities), which are thought to play an important role in the economy but at the same time face non trivial obstacles to enter the market for public procurement. When providing a preferential treatment to the group of interest government faces a wide set of instruments to apply. For example, it can either set aside a certain portion of its auctions or it can provide bid preferences to those groups. This paper aims to make a twofold empirical contribution to the current policy debate. First, using data on millions of procurement contracts from Russia it estimates the impact of set asides and bid preferences for domestic supplied goods on prices and entry, separately for first price sealed bid auctions and open descending auctions. Second, it com- pares the difference between the two preferential treatments within a given auction procedure. In contrast to the previous literature we are able to perform these steps without making any structural assumptions about the underlying game being played. During the talk I will mainly focus on the impact of bid preferences on prices and entry and underlying mechanisms driving the effects.

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