Research - Center of Research in Procurement and Supply Chain

OUR MAIN RESEARCH:

• Supplier Market Analysis
• Procurement Contracts
• Corruption in Procurement
• Global Sustainable Sourcing
• Green and Sustainable Procurement
• ICT in Procurement
• Tender Procedures and Negotiations
• Award Criterion
•Procurement of Innovation
•Procurement of Managemnt                                                        
• Public Private Partnerships and Project Financing
• Public Services and Public Infrastructures
• Supply Chain Management and Supply Partnerships
• Vendor rating

2019

Buyers' Role in Innovation Procurement

E. Iossa, F. Decarolis, G. de Rassenfosse, L.M. Giuffrida, V. Mollisi, E. Raiteri and G. Spagnolo

Abstract: What is the impact of buyers on the performance of innovation procurement? In which phase of the procurement process are buyers most crucial and why? We address these questions by exploiting a novel dataset that links U.S. federal R&D contracts to their follow-on patents, citations and claims. Using the deaths of managers in the offices close to where contracts are performed as shocks to the functioning of these offices, we measure a positive and sizable effect of public buyers on all three outcome measures. The buyer's role is stronger in the pre-award, tender-design phase, where cooperation between different specialists is essential, than in the following contract-management phase typically performed by individual officers. Consistently, bureaus where employees perceive high level of cooperation within the office are associated with better R&D outcomes.

Public Procurement as a Demand-side Policy: Project Competition and Innovation Incentives

E. Iossa, A. De Chiara

Abstract: We develop a model of project competition to compare two alternative and widely used approaches: (i) A (demand-side) procurement approach, in which the public authority specifies the type of project it will finance and (ii) a (supply-side) grant system, in which any type of project can be funded. The public authority can verify the characteristics of the projects submitted, but does not know which other projects are available. The paper sheds light on the role of public procurement to foster innovation.

Organizing Competition for the Market

E. Iossa, Patrick Rey and Michael Waterson

Abstract: The paper studies competition for the market in a setting where incumbents (and, to a lesser extent, neighboring incumbents) benefit from a cost advantage. The paper first compares the outcome of staggered and synchronous tenders, before drawing the implications for market design. We find that the timing of tenders should depend on the likelihood of monopolization. When monopolization is expected, synchronous tendering is preferable, as it strengthens the pressure that entrants exercise on the monopolist. When instead other firms remain active, staggered tendering is preferable, as it maximizes the competitive pressure that comes from the other firms.

Myths and Numbers on Whistleblower Rewards (W.P, Version)

G. Spagnolo, T. Nyrerod, forth coming in Regulation and Governance

Abstract: Whistleblower rewards have been used extensively in the United States to limit procurement fraud and tax evasion, and since the financial crisis their use has been extended to fight financial fraud. There is currently debate over their introduction in Europe, but authorities there appear considerably less enthusiastic than their American counterparts. While it is important that these tools are scrutinized in a lively democratic debate, much has been written – even by important institutional players – that has no empirical backing or openly contrasts the available evidence from independent research. In this paper we review some of the most debated issues regarding the potential benefits and costs of financial incentives for whistleblowers, while trying to separate existing evidence from conjectures with no empirical support, and myths in contrast to available evidence.

An Experimental Study on Sequential Auctions with Privately Known Capacities

P. Valbonesi, L. Corazzini and S. Galavotti, Games and Economic Behavior, forthcoming, DOI: 10.1016/j.geb.2019.06.005.

2018

Frequency of interaction, communication and collusion: an experiment (W.P, Version)

G. Spagnolo, M. Bigoni and J. Potter’s, forth. coming in Economic Theory 2018, 120(3): 826-858

Abstract: The frequency of interaction facilitates collusion by reducing gains from defection. Theory has shown that under imperfect monitoring flexibility may hinder cooperation by inducing punishment after too few noisy signals, making collusion impossible in many environments (Sannikov and Skrzypacz in Am Econ Rev 97:1794–1823, 2007). The interplay of these forces should generate an inverse U-shaped effect of flexibility on collusion. We test for the first time these theoretical predictions—central to antitrust policy—in a laboratory experiment featuring an indefinitely repeated Cournot duopoly, with different degrees of flexibility. Results turn out to depend crucially on whether subjects can communicate with each other at the beginning of a supergame (explicit collusion) or not (tacit collusion). Without communication, the incidence of collusion is low throughout and not significantly related to flexibility; when subjects are allowed to communicate, collusion is more common throughout and significantly more frequent in the treatment with intermediate flexibility than in the treatments with low or high flexibility.

Green Public Procurement, missing concepts and future trends e A critical review

Wenjuan Cheng, Andrea Appolloni , Alessio D'Amato, Qinghua Zhu

Abstract: Green Public Procurement (GPP) is an increasingly debated “demand side” environmental policy instrument. The aim of this paper is to take stock of the related literature, with the twofold aim of developing a conceptual model of the relevant phases of GPP and to identify the related research gaps in detail. The literature analyzed here comprises English language papers, which are focused on GPP during the time period from 2000 to 2016. By means of a systematic literature review and content analysis, we provide both a quantitative and qualitative viewpoint. As our analysis reveals, GPP discussion has mostly focused so far on the specific impacts of GPP implementation, while the discussion on GPP as compared to other environmental policy tools, in terms of efficiency and innovation, is still lagging behind; this is coupled with a limited geographical coverage. Finally, by disaggregating the 17 years period under scrutiny into four sub-periods allows us to outline the changes in research trends over time.

Aymmetric regulation and incentives for quality provision: the new phase for the Italian water services

P. Valbonesi, L. Bardelli, in S. Saussier (ed.): Palgrave Studies in Water Governance, London: Palgrave, 2018, Chapter 3: 57-84, DOI: 10.1007/978-3-319-98515-2.

Fiscal Consolidation by Intergovernmental Transfers Cuts? The Unpleasant Effect on Expenditure Arrears

P. Valbonesi, P. Chiades, L. Greco, V. Mengotto, L. Moretti, Economic Modelling, forthcoming, DOI: 10.1016/j.econmod.2018.09.008.

Public Procurement: New Theoretical and Empirical Developments. Introduction

P. Valbonesi, S. Galavotti and L. Moretti, American Economic Journal: Microeconomics, 2018, 10(4):1-27. DOI: 10.1257/ mic.20150240

Sophisticated Bidders in Beauty-Contest Auctions

P. Valbonesi, S. Galavotti and L. Moretti, American Economic Journal: Microeconomics, 2018, 10(4):1-27. DOI: 10.1257/ mic.20150240

Pre-commercial Procurement, Procurement of Innovative Solutions and Innovation Partnership in the EU: Rational and Strategy

P. Valbonesi, E. Iossa and F. Biagi, Economics of Innovation and New Technology, 2018, 27(8): 730-749. DOI:10.1080/10438599.2017.1402431.

Court Efficiency and Procurement Performance

P. Valbonesi, D. Coviello, L. Moretti and G. Spagnolo, Scandinavian Journal of Economics, forthcoming, DOI: 10.1111/sjoe.12225.

2017

The Effect of Discretion on Procurement Performance (W.P. version)

G. Spagnolo, D. Coviello and A. Guglielmo, forthc. in Management Science. 2018, 64 (2): v-x 495-981

Abstract: We run a regression discontinuity design analysis to document the causal effect of increasing buyers’ discretion on procurement outcomes in a large database for public works in Italy. Works with a value above a given threshold have to be awarded through an open auction. Works below this threshold can be more easily awarded through a restricted auction, where the buyer has some discretion in terms of who (not) to invite to bid. Our main result is that discretion increases the probability that the same firm wins repeatedly, and it does not deteriorate (and may improve) the procurement outcomes we observe. The effects of discretion persist when we repeat the analysis controlling for the geographical location, corruption, social capital, and judicial efficiency in the region of the public buyers running the auctions.

Court Efficiency and Procurement Performance (W.P Version)

G. Spagnolo, D. Coviello, L. Moretti and P. Valbonesi, in the Scandinavian Journal of Economics, 2018, 120 (3): 826-858

Abstract: Disputes over penalties for breaching a contract are often resolved in court. A simple model illustrates how inefficient courts can sway public buyers from enforcing a penalty for late delivery in order to avoid litigation, thereby inducing sellers to delay contract delivery. By using a large dataset on Italian public procurement, we empirically study the effects of court inefficiency on public work performance. Where courts are inefficient, we find the following: public works are delivered with longer delays; delays increase for more valuable contracts; contracts are more often awarded to larger suppliers; and a higher share of the payment is postponed after delivery. Other interpretations receive less support from the data.

Motivating Whistleblowers (W.P, Version)

G. Spagnolo, J. Butler and D. Serra, accepted for publication in Management Science

Abstract: We experimentally investigate employees’ decisions to blow the whistle on a manager whose law-breaking benefits the firm but harms society. We investigate the effects of both financial rewards and non-monetary incentives, in the form of public scrutiny, on whistleblowing as well as their interaction with the visibility of harm, i.e., whether the harm to society stemming from the manager’s malfeasance is known to the general public. Our results suggest that: i) financial rewards substantially increase the likelihood of whistleblowing; ii) public scrutiny and social judgment increase (decrease) whistleblowing when the negative externalities generated by fraud are visible (invisible) to the public. Ancillary results suggest an intriguing relationship between political orientation and responsiveness to public scrutiny.

Leniency, Asymmetric Punishment and Corruption: Evidence from China

Maria Berlin, Giancarlo Spagnolo and Bei Qin (2017-05-25)

Abstract: Leniency policies and asymmetric punishment are regarded as potentially powerful anticorruption tools, also in the light of their success in busting price-fixing cartels. It has been argued, however, that the introduction of these policies in China in 1997 has not helped fighting corruption. Following up on this view, the Central Committee of the Chinese Communist Party passed, in November 2015, a reform introducing heavier penalties, but also restrictions to leniency. Properly designing and correctly evaluating these policies is difficult. Corruption is only observed if detected, and an increase in convictions is consistent with both reduced deterrence or improved detection. We map the evolution of the Chinese anti-corruption legislation, collect data on corruption cases for the period 1986-2010, and apply a new method to identify deterrence effects from changes in detected cases developed for cartels by Miller (2009). We document a large and stable fall in corruption cases starting immediately after the 1997 reform, consistent with a negative effect of the reform on corruption detection, but under specific assumptions also with increased deterrence. To resolve this ambiguity, we collect and analyze a random sample of case files from corruption trials. Results point to a negative effect of the 1997 reform, linked to the increased leniency also for bribe-takers cooperating after being denounced. This likely enhanced their ability to retaliate against reporting bribe-givers – chilling detection through whistleblowing – as predicted by theories on how these programs should (not) be designed.

Barriers To Public Procurement: A Review and Recent Patterns In The EU

Chiara Carboni, Elisabetta Iossa, Gianpiero Mattera 2 Maggio 2017

Abstract. The international dimension of public procurement has gained in importance in the last decade and has attracted the attention of economist and policy makers. A number of trade agreements were signed with the intention to remove barriers to procurement markets and favour entry of foreign firms and products. However, empirical evidence shows that, despite the existence of trade agreements, discrimination towards foreign firms still applies in a number of countries around the world. In this paper, we discuss the methodologies used in the economic literature for the identification of overt and covert barriers to public tenders and some empirical evidence from the EU, TED database.  We stress the importance of collecting high quality data for meliorating the ability of international traders to detect procurement barriers.

Marketing Agencies and Collusive Bidding in Online Ad Auctions

Francesco Decarolis, Maris Goldmanis, Antonio Penta (April 7, 2017)

Abstract: The transition of the advertising market from traditional media to the internet has induced a proliferation of marketing agencies specialized in bidding in the auctions that are used to sell ad space on the web. We analyze how collusive bidding can emerge from bid delegation to a common marketing agency and how this can undermine the revenues and allocative efficiency of both the Generalized Second Price auction (GSP, used by Google and Microsoft-Bing and Yahoo!) and the of VCG mechanism (used by Facebook). We find that, despite its well-known susceptibility to collusion, the VCG mechanism outperforms the GSP auction both in terms of revenues and efficiency.

Prizes versus Contracts as Incentives for Innovation

Yeon-Koo Che, Elisabetta Iossa and Patrick Rey (16 Mar 2017)

Abstract: Procuring an innovation involves motivating a research effort to generate a new idea and then implementing that idea efficiently. If research efforts are unverifiable and implementation costs are private information, a trade-ooff arises between the two objectives. The optimal mechanism resolves the tradeoff via two instruments: a monetary prize and a contract to implement the project. The optimal mechanism favors the innovator in contract allocation when the value of innovation is above a certain threshold, and handicaps the innovator in contract allocation when the value of innovation is below that threshold. A monetary prize is employed as an additional incentive but only when the value of innovation is sufficiently high.

Court Efficiency and Procurement Performance

Decio Coviello, Luigi Moretti, Giancarlo Spagnolo, Paola Valbonesi (26 February 2017)

Abstract: Disputes over penalties for breaching a contract are often resolved in court. A simple model illustrates how inefficient courts can sway public buyers from enforcing a penalty for late delivery in order to avoid litigation, therefore inducing sellers to delay contract delivery. By using a large dataset on Italian public procurement, we empirically study the effects of court inefficiency on public work performance. We find that where courts are inefficient: i) public works are delivered with longer delays; ii) delays increase for more valuable contracts; iii) contracts are more often awarded to larger suppliers; and iv) a higher share of the payment is postponed after delivery. Other interpretations receive less support from the data.

Comparing Public Procurement Auctions

Francesco Decarolis (February 24, 2017)

Abstract: This paper contrasts two auction formats often used in public procurement: first price auctions with ex-post screening of bid responsiveness and average bid auctions, in which the bidder closest to the average bid wins. The equilibrium analysis reveals that their ranking is ambiguous in terms of revenues, but the average bid auction is typically less efficient. Using a dataset of Italian public procurement auctions run alternately under the two formats, a structural model of bidding is estimated for the subsample of first price auctions. Counterfactual estimates of the efficiency loss under the average bid auctions show that this mechanism fails to select to lowest bidder in two thirds of the auctions and that the average production cost is one sixth higher than in the first price auctions.

Court Efficiency and Procurement Performance

Decio Coviello, Luigi Moretti, Giancarlo Spagnolo, Paola Valbonesi (26 February 2017)

Abstract: Disputes over penalties for breaching a contract are often resolved in court. A simple model illustrates how inefficient courts can sway public buyers from enforcing a penalty for late delivery in order to avoid litigation, therefore inducing sellers to delay contract delivery. By using a large dataset on Italian public procurement, we empirically study the effects of court inefficiency on public work performance. We find that where courts are inefficient: i) public works are delivered with longer delays; ii) delays increase for more valuable contracts; iii) contracts are more often awarded to larger suppliers; and iv) a higher share of the payment is postponed after delivery. Other interpretations receive less support from the data.

Maintaining Competition in Recurrent Procurement Contracts: A Case Study on the London Bus Market

Elisabetta Iossa and Mike Waterson (February 24, 2017)

Abstract: Under recurrent procurement, the awarding of a contract to a firm may put it in an advantageous position in future tenders, which may reduce competition over time. The objective of this paper is to study the dynamics of competition for tendered contracts, focusing on factors that may generate incumbent advantage. Particular attention is given to learning economies, sunk costs of entry and switching costs for the procurer. The paper then applies these insights to analyse empirically the evolution of competition in the market for local bus services in London.

Small Italian wine producers’ internationalization: The role of network relationships in the emergence of late starters

Francioni Barbara, Vissak Tiia & Musso Fabio (February 2017)

Abstract: This paper aims to examine how network relationships influenced the internationalization of small Italian wine producers characterized as late starters. It is based on four cases. It shows that foreign tourists helped these firms to expand internationally: they identified business opportunities, suggested firms to contact importers, contacted importers themselves to get access to the same wine in their home country or provided foreign market knowledge. Thus, small wine producers should pay more attention to attracting tourists and creating network relationship with them. Several other network relationships − for instance, with friends and relatives, Italian expatriates and other business partners − also advanced the case firms’ internationalization. Moreover, they were affected by lack of time and resources, language barriers and other factors. Thus, all these aspects also need managers’ attention. Furthermore, they should take a more strategic approach towards internationalization and understand that not all internationalization attempts succeed or result in continuous orders.

Repeated Procurement with Unverifiable Quality: The case for Discriminatory Competitive Procedures

B. Cesi, A. Iozzi and G. L. Albano (January, 2017)

Abstract: Unverifiable quality may affect the enforcement of procurement contracts even when the award procedure is able to select the most efficient firm in the market. In this paper, we show that a discriminatory competitive mechanism – which awards the contract on the basis of price and (firms') past performance – yields an efficient allocation of the contract and allows the buyer to implement her desired quality. Quality enforcement arises out of relational contracting whereby the buyer ‘handicaps' a contractor in future competitive tendering processes if it fails to provide the required quality. We study an infinitely repeated procurement model with two firms and one buyer imperfectly informed on the firms' cost, in which, in each period, the buyer runs a discriminatory auction. We restrict our analysis to the case of a buyer committed to her handicapping strategy, a case which captures some of the features of a public buyer. When players use either grim trigger or stick-and-carrot strategies, we find that the buyer can induce the delivery of optimal (unverifiable) quality with a variety of handicap levels and, when applicable, durations of the punishment period; for some values of the handicap and the length of the punishment period, both firms remain active in the market even when punished.

The economic costs of civil war
Synthetic counterfactual evidence and the effects of ethnic fractionalization

Stefano Costalli, Luigi Moretti, Costantino Pischedda (January 24, 2017)

Abstract: There is a consensus that civil wars entail enormous economic costs, but there is little systematic analysis of the determinants of their heterogeneous destructiveness. Moreover, reliably estimating these costs has proven challenging, due to the complexity of the relationship between violence and socio-economic conditions. In this article, we study the effect of ethnic fractionalization of war-torn countries on the economic consequences of civil war. Building on an emerging literature on the relationships between ethnicity, trust, economic outcomes, and conflict processes, we argue that civil wars erode interethnic trust and highly fractionalized societies pay an especially high price, as they rely heavily on interethnic business relations. We use the synthetic control method to construct appropriate counterfactuals and measure the economic impact of civil war. Our focus is on the years of armed conflict in a sample of 20 countries for which we observe an average annual loss of local GDP per capita of 17.5%, though with remarkable variation across cases. The empirical analysis provides supporting evidence in the form of a robust positive association between ethnic fractionalization and our measures of war-induced economic costs.

Sophisticated Bidders in Beauty-Contest Auctions

Stefano Galavotti, Luigi Moretti, Paola Valbonesi ( 19 Jan 2017)

Abstract: We study bidding behavior by firms in beauty-contest auctions, i.e. auctions in which the winning bid is the one which gets closest to some function (average) of all submitted bids. Using a dataset on public procurement beauty-contest auctions, we show that firms’ observed bidding behavior departs from equilibrium and can be predicted by a sophistication index, which captures the firms’ accumulated capacity of bidding close to optimality in the past. We show that our empirical evidence is consistent with a Cognitive Hierarchy model of bidders’ behavior. We also investigate whether and how firms learn to bid strategically through experience.

2016

“Favoritism in Scoring Auctions”

Riccardo Camboni Marchi Adani e Paola Valbonesi - 2016

Abstract: Scoring rule auctions (SRAs) can be a powerful mechanism to procure complex works or services, when quality matters. However, given the buyers discretion in the design of SRAs, favouritism - with its potential positive (i.e. repeated cost-saving interactions) or negative (i.e. corruption) e⁄ects on social welfare - can arise. In this paper we empirically document potential favouritism in an original dataset of 196 SRAs for the procurement of canteen services in Italy over the period 2009-2013. We then sketch a simple model highlighting how an SRA with multidimensional quality can be distorted to favour the incumbent bidder winning the competition. Finally, we design and run a new empirical test to verify our theoretical result. We nd that SRAs can be distorted to favour the incumbent bidder, and that the victory of the incumbent is associated with less competition and higher prices; and no e⁄ect by quality weight in the scoring function on the winning rebate. (155 words).

Public procurement with unverifiable quality: The case for discriminatory competitive procedures

Berardino Cesi with Gian Luigi Albano and Alberto Iozzi - 13th November 2016

Abstract: Unverifiable quality may affect the enforcement of procurement contracts even when the award procedure is able to select the most efficient firm in the market. In this paper, we show that a discriminatory competitive mechanism – which awards the contract on the basis of price and (firms') past performance – yields an efficient allocation of the contract and allows the buyer to implement her desired quality. Quality enforcement arises out of relational contracting whereby the buyer ‘handicaps' a contractor in future competitive tendering processes if it fails to provide the required quality. We study an infinitely repeated procurement model with two firms and one buyer imperfectly informed on the firms' cost, in which, in each period, the buyer runs a discriminatory auction. We restrict our analysis to the case of a buyer committed to her handicapping strategy, a case which captures some of the features of a public buyer. When players use either grim trigger or stick-and-carrot strategies, we find that the buyer can induce the delivery of optimal (unverifiable) quality with a variety of handicap levels and, when applicable, durations of the punishment period; for some values of the handicap and the length of the punishment period, both firms remain active in the market even when punished.

Local university supply and distance: a welfare analysis with centralized and decentralized tuition fees

Berardino Cesi with Elias Carroni and Dimitri Paolini - 25th April 2016

Abstract: We consider a two-city model in which two university systems may occur: a centralized system in which a social planner sets the tuition fee and a decentralized system in which universities are free to set their own fees. Within these two systems we also analyze two further scenarios, one with only one university and another with one university in each city. Individuals with heterogeneous innate ability decide whether to go to university according to the average ability (peer group effect henceforth), a tuition fee and mobility costs, if any. In the centralized system, the welfare is maximized by opening two free-of-fees universities, one in each city. This maximizes university participation and eliminates the impediment of mobility costs. In the decentralized system, whether a single-university or a two-university system is more welfare enhancing depends on the mobility costs. When mobility costs are sufficiently low, then having only one university is welfare maximizing. When, instead, mobility costs are high, two universities result to be welfare enhancing.

Pre-commercial Procurement, Procurement of Innovative Solutions and Innovation Partnerships in the EU: Rationale and Strategy

Elisabetta Iossa, Federico Biagi and Paola Valbonesi - 7th October 2016

Abstract: We consider alternative European public procurement mechanisms for acquiring R&D services and innovative solutions, focusing on Pre-commercial Procurement, Public Procurement of Innovative Solutions and Innovation Partnerships. For each of these mechanisms, we identify conceptually strengths and weaknesses. We highlight the role played by (i) economies of scope and externalities between R&D and large-scale production; (ii) degree of specificity of the innovation; (iii) role of SMEs in the market and level of market competition; (iv) risk of market foreclosure and supplier lock-in.
This article contributes to the literature on incentives in demand-side innovation policy by tapping into the contractual design features and by offering relevant implications for academics and policy makers.

Maintaining Competition in Recurrent Procurement Contracts: A case study on the London Bus Market

Elisabetta Iossa and Michael Waterson - 4th August 2016

Abstract. Under recurrent procurement, the awarding of a contract to a firm may put it in an advantageous position in future tenders, which may reduce competition over time. The objective of this paper is to study the dynamics of competition for tendered contracts, focusing on factors that may generate incumbent advantage. Particular attention is given to learning economies, sunk costs of entry and switching costs for the procurer. The paper then applies these insights to analyse empirically the evolution of competition in the market for local bus services in London.

Buyer Quality and Procurement Outcomes: Explorative Evidence From the US.

Elisabetta Iossa with Francesco Decarolis, Leonardo Giuffrida, Vincenzo Mollisi and Giancarlo Spagnolo - 23th december 2016

Abstract: We explore empirically the impact of buyer quality on public procurement outcomes. Using purchases data (Federal Procurement Data System) and survey data (Federal Employee Viewpoint Survey) from US federal agencies, we find that procurement quality is highly heterogeneous across different agencies and persistent over time. The qualitative aspect that better predicts procurement performance is the perceived degree of cooperation within the unit, followed by the presence of appropriate incentives. We then asses the main channels through which public procurer quality affects outcomes. We find that buyer quality improves the selection of suppliers and strengthens the association between the use of cost plus contracts and the negotiation procedure. Buonasera

Prizes versus Contracts as Incentives for Innovation

Elisabetta Iossa with Yeon-Koo Che and Patrick Rey - 10th September 2016

Abstract: Procuring an innovation involves motivating a research effort to generate a new idea and then implementing that idea efficiently. If research efforts are unverifiable and implementation costs are private information, a trade-off arises between the two objectives. The optimal mechanism resolves the tradeoff via two instruments: a monetary prize and a contract to implement the project. The optimal mechanism favors the innovator in contract allocation when the value of innovation is above a certain threshold, and handicaps the innovator in contract allocation when the value of innovation is below that threshold. A monetary prize is employed as an additional incentive but only when the value of innovation is sufficiently high.

Memory and Markets

Giancarlo Spagnolo with Sergei Kovbasyuk in EIEF Working Paper 16/06 ( March 2016)

Abstract: We analyze the effects of erasing past records on long-run outcomes in a dynamic market with heterogeneous sellers whose quality changes with time. Buyers leave positive or negative feedback on sellers with an information intermediary. When average seller quality is low, perfect records of past feedback lead to low information production and no trade in the long run. Limited records encourage information production and sustain stationary equilibria with trade when memory of positive records is short and memory of negative ones is long. The stationary equilibrium with the highest social welfare requires the memory of negative records to be limited.

Court Efficency and Procurement Performance

Giancarlo Spagnolo with D. Coviello, L. Moretti and P. Valbonesi, forthc. in the Scandinavian Journal of Economics (2016)

Abstract: Disputes over penalties for breaching a contract are often resolved in court. A simple model illustrates how inefficient courts can sway public buyers from enforcing a penalty for late delivery in order to avoid litigation, therefore inducing sellers to delay contract delivery. By using a large dataset on Italian public procurement, we empirically study the effects of court inefficiency on public work performance. We find that where courts are inefficient: i) public works are delivered with longer delays; ii) delays increase for more valuable contracts; iii) contracts are more often awarded to larger suppliers; and iv) a higher share of the payment is postponed after delivery. Other interpretations receive less support from the data.

Privatization and Quality: Evidence from Elderly Care in Sweden

Giancarlo Spagnolo With M. Bergman. P. Johansson and S. Lundberg, forthc. in the Journal of Health Economics, Volume 49, September 2016, Pages 109–119.

Abstract: Non-contractible quality dimensions are at risk of degradation when the provision of public services is privatized. However, privatization may increase quality by fostering performance-improving innovation, particularly if combined with increased competition. We assemble a large data set on elderly care services in Sweden between 1990 and 2009 and estimate how opening to private provision affected mortality rates – an important and not easily contractible quality dimension – using a difference-in-difference-in-difference approach. The results indicate that privatization and the associated increase in competition significantly improved non-contractible quality as measured by mortality rates.

Detecting Bidders Groups in Collusive Auctions

Francesco Decarolis with Timothy G. Conley in American Economic Journal: Microeconomics Vol. 8, No. 2 May, pp. 1-38, 2016.

Abstract: We study entry and bidding in procurement auctions where contracts are awarded to the bid closest to a trimmed average bid. These auctions, common in public procurement, create incentives to coordinate bids to manipulate the bid distribution. We present statistical tests to detect coordinated entry and bidding choices. The tests perform well in a validation dataset where a court case makes coordination observable. We use the tests to detect coordination in a larger dataset where it is suspected, but not known. The results are used to interpret a major market shakeout following a switch to first price auctions.

Allotment in first-price auctions: an experimental investigation

Paola Valbonesi with Luca Corazzini, Stefano Galavotti and Rupert Sausgruber - 23th March 2016

Abstract: We experimentally study the effects of allotment—the division of an item into homogeneous units—in independent private value auctions. We compare a bundling first-price auction with two equivalent treatments where allotment is implemented: a two-unit discriminatory auction and two simultaneous single-unit first-price auctions. We find that allotment in the form of a discriminatory auction generates a loss of efficiency with respect to bundling. In the allotment treatments, we observe large and persistent bid spread, and the discriminatory auction is less efficient than simultaneous auctions. We provide a unified interpretation of our results that is based on both a non-equilibrium response to the coordination problem characterizing the simultaneous auction format and a general class of behavioral preferences that includes risk aversion, joy of winning and loser’s regret as specific cases.

Benefits to vulnerable consumers in Italian energy markets: a focus on the eligibility criterion

Paola Valbonesi with R. Miniaci and C. Scarpa - May 2016

Abstract: We discuss alternative approaches to define and measure the affordability of energy consumption. We then focus on energy vulnerability in Italy and on the benefit schemes that compensate households in needs for their spending on energy services. We identify the potential beneficiaries of these subsidies in 2012 and investigate if their eligibility criterion is effective in targeting public resources to families in a state of energy vulnerability.

2015

Quantifying The Impact of Pre-Commercial Procurement (PCP) In Europe Based On Evidence From The ICT Sector By Sara Bedin, Elisabetta Iossa and Francesco Decarolis-Study commissioned by the European Commission, DG Connect.

Abstract. Pre-commercial procurement (PCP) is a competitive multiple-sourcing procedure for procuring research and development services. It involves different suppliers competing in parallel through different phases of development. The risks and benefits are shared between the procurers and the suppliers under market conditions. The PCP is complementary to Public Procurement of Innovative Solutions (PPI) that refers to a public procurement in which procurers act as early adopters of innovative solutions that are new arrivals on the market, but not yet available on a large-scale commercial basis. The objective of this study is to quantify the economic impact of PCP using a sample of PCP and non-PCP cases implemented in Europe. In particular, the study aims to estimate the impacts of PCP on the following aspects, which constitute our nine research questions (see also page 8): 1) Improvements in the quality and/or efficiency of the public services achieved by deploying the innovative solutions developed as a result of the PCP; 2) Increase in quality and decrease in prices of products resulting from the highly competitive multi-sourcing, phased procurement approach that distinguishes PCP from other procurement approaches; 3) Reduction in the risk of failure in large scale follow-up PPI procurements 4) Increase in the efficiency of R&D expenditures; 5) Speeding up time-to-market for firms and facilitating the access of SMEs to the procurement market; 6) Attracting financial investors to Europe; 7) Increased interoperability / impact on standardization / reduction of supplier lock-in; 8) Impacts on competition structure in the market; 9) Increased exploitation of IPRs and R&D results (IPR protected or not) in general.

For further information see the EC Digital Agenda website:

https://ec.europa.eu/digital-agenda/en/news/quantifying-impact-pcp-europe-study-smart2014-0009

2014

Andrea Appolloni, Hui Sun, Fu Jia, Xiaomei LI, Green Procurement in the Private Sector: A State of the Art Review between 1996 and 2013, Journal of Cleaner Production,  ISSN 0959-6526,

ABSTRACT: The purpose of this paper is to identify the main themes of Green Procurement (GP) in the private sector through a literature review of papers published between 1996 and 2013 and to develop some future research directions. GP research has garnered interest from academics and industry alike. This is demonstrated by the increasing number of academic papers published in recent years. This literature review builds on the three themes in the adoption of GP identified from the literature: 1) the motivation and drivers for the implementation of GP; 2) barriers to the implementation of GP; 3) the performance impacts of the adoption of GP. Given that there are distinctive features of the private sector, compared to the public sector, this analysis focuses on GP in the private sector. The approach to GP holds important implications for managers, by directing limited resources towards projects which intersect both environmental performance and economic performance. The article discusses interesting findings, develops a conceptual framework of GP and suggests a number of directions for future research. http://www.sciencedirect.com/science/article/pii/S0959652614009317

Francesco Rizzi, Marco Frey, Francesco Testa, Andrea Appolloni, Environmental value chain in green SME networks: the threat of the Abilene paradox, Journal of Cleaner Production,  ISSN 0959-6526

ABSTRACT: Demand-side policies are an important complement to subsidies in fostering green product/service markets. Green Public Procurement (GPP), in particular, presents valuable characteristics in terms of directionality, volumes and measurability. Despite being widely analysed from a public perspective, GPP development is still under-explored from a corporate point of view. To shed some light on the strategic attitude of firms towards GPP, this paper discusses an exploratory research in the field of road construction. An inductive analysis of direct observations and theoretical contributions suggests the potential for the so-called “Abilene paradox” to hamper GPP opportunities for Small and Medium Enterprises. In fact, in times of crisis, increased pressures to improve performance and reduce risk, resistance to change and strategic myopia can easily impair inter-organizational interactions and thus prevent potentially innovative networks from pressuring public investments in green supply chains. The related policy suggestions represent a first attempt to enter the realm of systemic approaches to http://www.sciencedirect.com/science/article/pii/S0959652614009287

Iossa Elisabetta, Contract and Procurement Design for PPPs in Highways: the Road Ahead 06/01/2014

ABSTRACT: We review international practice in concession-based public private partnerships (PPPs) for highways, in the light of the economic theory of incentives, procurement and regulation. In particular, we analyse alternative funding mechanisms to cover highway costs, and their impact on demand risk allocation, incentives, cost of capital, and likelihood of renegotiation. We note how real tolls must pursue a number of contrasting objectives, which may be best served by introducing tariff discrimination. We discuss alternative tariff regulations used in practice and warn against tariff mechanisms that transfer demand risk to users and depart from the principles of price cap regulation. We highlight that it is desirable to transfer some traffic risk to the concessionaire but the level of risk transfer should be lower at the beginning of the contract, especially for greenfield projects where little demand information is initially available. We discuss the procurement of highway PPPs, focusing on the choice of the bidding variables, and on the distortions that renegotiations introduce at bidding stage. We stress the importance of strong institutions and absence of political interference in regulatory matters, and we highlight the benefit of respecting and standardizing contract terms.

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Iossa Elisabetta, [University of Tor Vergata, Italy and CEPR, United Kindgom] was submitted as background material for Item VIII at the 57th meeting of Working Party No. 2 on 16 June 2014.

ABSTRACT: Public Private Partnerships (PPPs) have been implemented widely around the world to build and manage public infrastructures in sectors such as water, transports, energy, and telecommunications and, more recently, education, health, prisons, and waste. Key aspects of their design are task bundling, long-term contracting, private finance and risk transfer.
In this paper, we briefly discuss how these characteristics constitute the main drivers behind the potential efficiency improvement that PPP may bring about, once an efficient private partner has been selected at competitive conditions. However, we also highlight why these very same factors may affect the extent to which competition for the market can function effectively.

view a PDF file        IOSSA PRESENTATION

Linee Guida 2014

2013

Iossa Elisabetta, The Simple Micro-Economics of Public Private Partnerships, with David Martimort, CEIS, Discussion Papers,139, 2013. Journal of Public Economic Theory, Forthcoming

Abstract: We build on the existing literature in Public Private Partnerships (PPP) to analyze the main incentive issues in PPPs and the shape of optimal contracts in those contexts. We present a basic model of procurement in a multi-task environment in which a risk averse fi rm chooses non-contractible e fforts in cost reduction and quality improvement. We fi rst consider the eff ect on incentives and risk transfer of bundling building and management stages into a single contract, allowing for di fferent assumptions on feasible contracts and information available to the government. Then we extend the model in novel directions. We study the relationship between the operator and its fi nanciers and the impact of private fi nance. We discuss the trade-off between incentive and flexibility in PPP agreements and the dynamics of PPPs, including cost overruns. We also consider how institutions, and specifi cally the risk of regulatory opportunism, aff ects contract design and incentives. The conclusion summarizes policy implications on the desirability of PPPs.
Keywords: Public-private partnerships, public-service provision.

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Iossa Elisabetta, Building Reputation for Contract Renewal: Implications for Performance Dynamic and Contract duration,’ with Patrick Rey. CEPR Discussion Paper 9571, 2013; Journal of the European Economic Association. Forthcoming.

Abstract: We study how career concerns affect the dynamics of incentives in a multi-period contract, when the agent’s productivity is a stochastic function of his past productivity and investment. We show that incentives are stronger and performance is higher when the contract approaches its expiry date. Contrary to common wisdom, long-term contracts may strengthen reputational effects whereas short-term contracting may be optimal when investment has persistent, long-term effects.

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Spagnolo Giancarlo, "The Distortionary Effects of Fines Based on Revenue”, with V. Bageri and Y. Katsoulakos, forthcoming in the The Economic Journal.

Abstract: In most jurisdictions, antitrust fines are based on affected commerce  rather than on collusive profits, and in some others, caps on fines are introduced based on total firm sales rather than on affected commerce. We uncover a number of distortions that these policies generate, propose simple models to characterize their comparative static properties, and quantify them with simulations based on market data. We conclude by discussing the obvious need to depart from these distortive rules-of-thumb that appear to have the potential to substantially reduce social welfare. 

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Spagnolo Giancarlo, “Competition Policy and Productivity Growth: an Empirical Assessment”, with P. Buccirossi,T. Duso, C. Vitale and L. Ciari, forthcoming in the Review of Economics and Statistics 

Abstract: This paper empirically investigates the effectiveness of competition policy by estimating its impact on Total Factor Productivity (TFP) growth for 22 industries in 12 OECD countries over the period 1995-2005. We find a robust positive and significant effect of competition policy as measured by newly created indexes. We provide several arguments and results based on instrumental variables estimators and non-linearities to support the claim that the established link can be interpreted in a causal way. At a disaggregated level, the effect on TFP growth is particularly strong for specific aspects of competition policy related to its institutional set up and antitrust activities (rather than merger control). The effect is strengthened by good legal systems, suggesting complementarities between competition policy and the efficiency of law enforcement institutions.

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Spagnolo Giancarlo, Privatization and Quality: Evidence from Elderly Care in Sweden with Lundberg, Sofia Umeå University, Bergman, Mats A. Södertörn University

Abstract: Many quality dimensions are hard to contract upon and are at risk of degradation when services are procured rather than produced in-house. However, procurement may foster performance-improving innovation. We assemble a large data set on elderly care services in Sweden between 1990 and 2009, including survival rates - our measure of non-contractible quality - and subjectively perceived quality of service. We estimate how procurement from private providers affects these measures using a difference-in-difference approach. The results indicate that procurement significantly increases non-contractible quality as measured by survival rate, reduces the cost per resident but does not affect subjectively perceived quality.

link: https://ideas.repec.org/p/hhs/hasite/0019.html

Valbonesi Paola, “Time overruns as opportunistic behavior in public procurement”, in Journal of Economics, (2013), forthcoming, (with C. D’Alpaos, M. Moretto and S. Vergalli).

Abstract: This paper considers the supplier’s strategic delivery lead time in a public procurement setting as the result of the firm’s opportunistic behavior on the optimal investment timing. In the presence of uncertainty on construction costs, we model the supplier’s option to defer the contract’s execution as a Put Option. We include in the model both the discretion of the court of law in enforcing contractual clauses (i.e. a penalty for delays) and the "quality" of the judicial system. Then, we calibrate the model using parameters that mimic the Italian procurement for public works and calculate the maximum amount that a firm is "willing to pay" (per day) to postpone the delivery date and infringe the contract provisions. Our results show that the incentive to delay is greater the higher the construction costs and their volatility, and the weaker the penalty enforcement by the courts of law.

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Valbonesi Paola, "Aiding car producers in the EU: money in search for a strategy, in Journal of Industry, Competition and Trade “, (2013), 13(1): 67-87. (with M. Nicolini e C. Scarpa). DOI:10.1007/s10842-012-0146-5.

Abstract: This article investigates how the general principles of the Treaty have been applied to the car sector in the EU, where the soft law provisions are of particular interest. A detailed quantitative analysis from 1990 to 2008 highlights a reduction of aid over time. A shift from sectoral to “regional development” motives in granting aid to the sector is also observed in the last 10 years. However, sector specific aid is now less explicit but it remains important. Large amounts of public money are spent without a consistent strategy, reducing capacity in some cases, expanding it in others. The scarcity of public funds calls for a more focussed European policy for this industry.

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Valbonesi Paola, Subcontracting in Public Procurement: An Empirical Investigation (with Luigi Moretti)

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 mandatory subcontracting. The latter are free to choose whether or not to subcontract some tasks to similarly qualified firms, adopting an optional 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, firms fixed effects, and characteristics of the subcontract, indicates that firms apply different prices to different subcontracting strategies in the public procurement supply chain.

link: https://ideas.repec.org/p/pad/wpaper/0154.html

Decarolis Francesco, Detecting Bidders Groups in Collusive Auctions (with Timothy G. Conley) February 15, 2013

Abstract: We study entry and bidding in procurement auctions where contracts are awarded to the bid closest to a trimmed average bid. We characterize equilibrium under competition and show that it is weak due to strong incentives for cooperation. We present statistical cooperation tests motivated by how a coalition bids to manipulate the mechanism. We show that our tests perform well in a validation dataset with known cartels. We also use them to investigate cooperation in a larger dataset where cartels are suspected but not known. We detect several suspiciously cooperative groups with potentially substantial, positive eff ects upon auctioneers' revenues.

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Decarolis Francesco, “Awarding Price, Contract Performance and Bids Screening: Evidence from Procurement Auctions,” forthcoming at the American Economic Journal: Applied Economics (2013).

Abstract: This paper presents evidence on the perverse trade-o that rst price auctions induce between low prices at the awarding stage and poor ex post performance when bids are not binding commitments. By exploiting the di erent timing with which rst price auctions were introduced in Italy to procure public works, this study nds that at least half of the cost savings from lower winning prices are lost because of ex post renegotiation. Screening the lowest price bid for its responsiveness prevents performance worsening but also reduces the initial cost savings by a third and induces delays in awarding the contract. JEL: L22, L74, D44, D82, H57. Keywords: Procurement, Auctions, Renegotiation, Di erence-in-Di erences.

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Decarolis Francesco, Introduction to Public Procurement’s Place in the World: The Charge Toward Sustainability and Innovation (with M. Frey). Special issue of the Rivista di Politica Economica, April/June, 2013, edited by F. Decarolis and M. Frey.

Abstract: The seven essays in this volume address different issues related to green and innovation procurement as well as more general challenges in public procurement. These studies address both general, abstract problems of optimal public procurement and concrete cases of national or even local public procurement systems.The evidence that they present covers a broad spectrum of countries including Italy, Latvia, the Netherlands and several African countries. Reflecti

MISSION

The "Center of Research in Procurement and Supply Chain", Proxenter, undertakes interdisciplinary research on Public and Private Procurement and on the Supply Chain. It promotes the cultural and scientific debate on these issues, working with governments, institutions and companies.