On specification and inference in the econometrics of public procurement

Abstract: In Paper [I] we use data on Swedish public procurement auctions for internal regularcleaning service contracts to provide novel empirical evidence regarding green publicprocurement (GPP) and its effect on the potential suppliers’ decision to submit a bid andtheir probability of being qualified for supplier selection. We find only a weak effect onsupplier behavior which suggests that GPP does not live up to its political expectations.However, several environmental criteria appear to be associated with increased complexity,as indicated by the reduced probability of a bid being qualified in the postqualificationprocess. As such, GPP appears to have limited or no potential to function as an environmentalpolicy instrument. In Paper [II] the observation is made that empirical evaluations of the effect of policiestransmitted through public procurements on bid sizes are made using linear regressionsor by more involved non-linear structural models. The aspiration is typically to determinea marginal effect. Here, I compare marginal effects generated under both types ofspecifications. I study how a political initiative to make firms less environmentally damagingimplemented through public procurement influences Swedish firms’ behavior. Thecollected evidence brings about a statistically as well as economically significant effect onfirms’ bids and costs. Paper [III] embarks by noting that auction theory suggests that as the number of bidders(competition) increases, the sizes of the participants’ bids decrease. An issue in theempirical literature on auctions is which measurement(s) of competition to use. Utilizinga dataset on public procurements containing measurements on both the actual and potentialnumber of bidders I find that a workhorse model of public procurements is bestfitted to data using only actual bidders as measurement for competition. Acknowledgingthat all measurements of competition may be erroneous, I propose an instrumental variableestimator that (given my data) brings about a competition effect bounded by thosegenerated by specifications using the actual and potential number of bidders, respectively.Also, some asymptotic results are provided for non-linear least squares estimatorsobtained from a dependent variable transformation model. Paper [VI] introduces a novel method to measure bidders’ costs (valuations) in descending(ascending) auctions. Based on two bounded rationality constraints bidders’costs (valuations) are given an imperfect measurements interpretation robust to behavioraldeviations from traditional rationality assumptions. Theory provides no guidanceas to the shape of the cost (valuation) distributions while empirical evidence suggeststhem to be positively skew. Consequently, a flexible distribution is employed in an imperfectmeasurements framework. An illustration of the proposed method on Swedishpublic procurement data is provided along with a comparison to a traditional BayesianNash Equilibrium approach.