Public procurement contracts are necessarily incomplete and require frequent ex-post renegotiation. In this paper, we first develop a stylized theoretical model of the effects of renegotiation policies on firms' bidding strategies and, consequently, on the winning bids and final prices of contracts. To empirically test the model's predictions, we then use a policy reform in the Czech Republic that implemented an EU Directive into Czech law, which eased the rules for renegotiation. Our findings show that (i) eased renegotiation rules lead to a decrease in the average winning bids; however, (ii) average final prices of contracts remain at the pre-reform level because the extra renegotiated price compensates for the drop in winning bids. While we do not find convincing evidence of a decrease in the productivity of the winning firms, we do provide suggestive evidence of a change in contract allocation towards firms with higher bargaining power.

This paper studies how the ratchet effect and managerial accountability affects the attainment non-binding performance targets within government. The U.S. federal government sets agency-specific goals for contract awards to small businesses. I find evidence of a ratchet effect, where small business utilization one year results in a higher goal the next. Under uncertainty, agencies may be conservative early in the year to avoid to unexpectedly high awards by year’s end, and I find evidence consistent with these within-year dynamics. Next, exploiting a 2013 increase in accountability for agency leaders in meeting small business goals, I examine how managerial incentives affect goal attainment. After this change, agencies accelerated small business awards when lagging behind their small business target. This acceleration is associated with a greater likelihood of adverse contract outcomes. Finally, I use an excess bunching design around sole-sourcing thresholds to demonstrate that the above patterns are intentional.

We explore the relationship between political donations and the allocation of public procurement contracts across multiple local elections in Colombia. By linking the universe of public contractors and the mandatory report of political donations by individuals and firms, our reduced form results demonstrate a long-term distortion in the contract allocation process attributable to political donations: Contractors who donate to political campaigns are more likely to be awarded contracts, often of greater value, exceeding budgetary limits. Donor contractors also tend to be less experienced individuals and riskier firms. Returns to donations remain even after losing direct political connections, suggesting that donations grant contractors extended access beyond immediate reciprocation. We conduct a Randomized Control Trial to study how new mayors respond to deterrence messages about contract scrutiny for their donors. Using this intervention, we estimate a structural model to rationalize the reduced form results and evaluate counterfactual policies.

This project scrutinizes the impact of public spending efficiency on aggregate firm productivity, with a specific focus on public procurement within the construction sector. We explore the different effects on a firm's productivity arising from two commonly employed awarding procedures: First Price Auction (FPA) and Average Bid Auction (ABA). While the FPA allocates the contract to the lowest bid, the ABA's method resembles a lottery in selecting the winner. FPA yields a threefold increase in turnover compared to ABA, with a particularly pronounced effect observed among smaller firms. Additionally, the study quantifies the aggregate loss in productivity within the Italian construction sector attributable to the introduction of ABA.