The Impacts of Different Regulatory Regimes on the Effectiveness of Public Procurement

Abstract

The combination of two reforms in Russia, reform of public-sector entities and of public procurement, enables us to estimate the results of a transition from rigid to more flexible regulations in public procurement (PP). We consider two public universities in 2011–2012. The procurements of one university were regulated by rigid Federal Law during the entire period; the procurements of the other university were regulated by Federal Law until June 2011 and then by a more flexible regulation. Using the difference-in-differences methodology, we assess how the transition to this new regulation affects the main PP parameters. We show that more flexible regulation leads to a decline in bid competition but improves contract execution.

Keywords:

• institutional reforms
• natural experiment
• procurement effectiveness
• public procurement

ACKNOWLEDGMENTS

The authors would like to thank Giancarlo Spagnolo, Elena Podkolzina, and other participants at the 2013 Workshop on “Sustainable Public Procurement: Research Trends and New Challenges” in Moscow as well as William Pyle and two anonymous reviewers for helpful comments and suggestions. This article has been prepared as part of the project “Comparative Analysis of Public Procurement Effectiveness” supported by the Basic Research Program of the Higher School of Economics in 2013–2014.

Notes

¹ See Nelson (1970), Darby & Karni (1973), and Tirole (1988). The quality characteristics of the first group of “search goods” can be established prior to the contract conclusion and checked at the point of delivery. Cement or stationery are examples of these goods. The quality characteristics of the second group of “experience goods” can be set before the conclusion of the contract; however, these generally can be checked only at the time of consumption, i.e., after the contract has been concluded. These goods include food products and heating line repair work. Finally, the qualitative characteristics of the third group of “credence goods” often cannot be set by the customer independently, even in the process of using the purchased goods, works, and services and fulfillment of the contract. The evaluation of the quality of these goods generally requires expert assessment. Examples of “credence goods” include medical or educational services. In accordance with this classification, different procurement procedures are recommended for different types of goods.

² The “Hawthorne effect” is defined by the Cambridge Dictionary as “the theory that people’s performance at work improves if they know they are being studied or being given special attention by management.”