Hostname: page-component-78c5997874-s2hrs Total loading time: 0 Render date: 2024-11-12T19:40:02.008Z Has data issue: false hasContentIssue false
  • English
  • Français

Uncovering the structure of public procurement transactions

Published online by Cambridge University Press:  10 May 2019

Mircea Popa
Get access Rights & Permissions [Opens in a new window]

Abstract

Close ties between government authorities and private firms are often the object of suspicion, but a systematic understanding of when they arise is still missing. This article uses machine learning tools to analyze a large dataset of public contracts from across Europe, in order to identify the conditions under which close connections, defined both in terms of repeated interaction, as well as geographical dispersion, appear. Previous theoretical results suggest that close ties should emerge as an enforcement mechanism in settings characterized by weak outside enforcement, such as those involving corruption. Results from random forest models show support for this hypothesis, along with identifying other structural determinants of the outcome. The most striking finding is that even after accounting for numerous potential confounders, major differences in terms of average diversity levels between countries persist, and these differences map onto an indicator of governance quality and corruption, but not at all on income per capita. These findings point to the centrality of the structure of interactions between private and public actors for understanding governance outcomes.

Keywords

public procurementpublic contractinggovernancecorruptionmachine learning
Type
Research Article
Information
Business and Politics , Volume 21 , Issue 3 , September 2019 , pp. 351 - 384
Copyright
Copyright © V.K. Aggarwal 2019 and published under exclusive license to Cambridge University Press 

Access options

Get access to the full version of this content by using one of the access options below. (Log in options will check for institutional or personal access. Content may require purchase if you do not have access.)

Footnotes

†

Many thanks to Jakob Schneebacher, Adi Dasgupta, panel participants at APSA 2017, colleagues at the University of Bristol, and three anonymous reviewers, for helpful comments on the paper.

References

Adler, W., Potapov, S., and Lausen, B.. 2011. “Classification of repeated measurements data using tree-based ensemble methods.” Computational Statistics 26 (2): 355.Google Scholar
Aggarwal, R.K., Meschke, F., and Wang, T.Y.. 2012. “Corporate political donations: investment or agency?” Business and Politics 14 (1): 1–38.Google Scholar
Angrist, J.D., and Pischke, J.S.. 2008. Mostly Harmless Econometrics: An Empiricist's Companion. Princeton, NJ: Princeton University Press.Google Scholar
Bajari, P., and Tadelis, S.. 2001. “Incentives versus transaction costs: A theory of procurement contracts.” Rand Journal of Economics, 32 (3): 387–407.Google Scholar
Baldi, S., Bottasso, A., Conti, M., and Piccardo, C.. 2016. “To bid or not to bid: That is the question.” European Journal of Political Economy 43: 89–106.Google Scholar
Banerjee, A.V., and Duflo, E.. 2000. “Reputation effects and the limits of contracting: A study of the Indian software industry.” The Quarterly Journal of Economics 115 (3): 989–1017.Google Scholar
Boas, T.C., Hidalgo, F.D., and Richardson, N.P.. 2014. “The spoils of victory: campaign donations and government contracts in Brazil.” The Journal of Politics 76 (2): 415–29.Google Scholar
Boubakri, Narjess, Guedhami, Omrane, Mishra, Dev, and Saar, Walid. 2012. “Political Connections And The Cost Of Equity Capital.” Journal of Corporate Finance 18 (3): 541–559.Google Scholar
Breiman, L. 2001. Random forests. Machine learning 45 (1): 5–32.Google Scholar
Brown, M., Falk, A., and Fehr, E.. 2004. “Relational contracts and the nature of market interactions.” Econometrica 72 (3): 747–80.Google Scholar
Brown, T.L., Potoski, M., and Van Slyke, D.M.. 2009. “Contracting for complex products.” Journal of Public Administration Research and Theory 20: 141–58.Google Scholar
Charron, N., Dahlström, C., Fazekas, M., and Lapuente, V.. 2017. “Careers, Connections, and Corruption Risks: Investigating the impact of bureaucratic meritocracy on public procurement processes.” The Journal of Politics 79 (1): 89–104.Google Scholar
Christen, P. 2012. “A survey of indexing techniques for scalable record linkage and deduplication.” IEEE transactions on knowledge and data engineering 24 (9): 1537–55.Google Scholar
Claessens, Stijn, Feijen, Erik, and Laeven, Luc. 2008. “Political Connections And Preferential Access To Finance: The Role Of Campaign Contributions.” Journal of Financial Economics 88 (3): 554–80.Google Scholar
Cohen, W., Ravikumar, P., and Fienberg, S.. 2003. “A comparison of string metrics for matching names and records.” In Kdd workshop on data cleaning and object consolidation (vol. 3), 73–8.Google Scholar
Corts, K.S., and Singh, J.. 2004. “The effect of repeated interaction on contract choice: Evidence from offshore drilling.” Journal of Law, Economics, and Organization 20 (1): 230–60.Google Scholar
Corts, K.S. 2011. “The interaction of implicit and explicit contracts in construction and procurement contracting.” The Journal of Law, Economics, & Organization 28 (3): 550–68.Google Scholar
Eggers, A., and Hainmueller, J. 2013. “Capitol losses: The mediocre performance of Congressional stock portfolios.” The Journal of Politics 75 (2): 535–51.Google Scholar
Della Porta, D., and Vannucci, A. 2004. “The governance mechanisms of corrupt transactions.” In The new institutional economics of corruption. London: Routledge.Google Scholar
European Commission. 2016. “Single market scoreboard: public procurement.” Available at: http://ec.europa.eu/716internal_market/scoreboard/performance_per_policy_area/public_procurement/index_en.htm (accessed on 1 July 2018).Google Scholar
Faccio, M., and Parsley, D.C. 2009. “Sudden deaths: Taking stock of geographic ties.” Journal of Financial and Quantitative Analysis 44 (3): 683–718.Google Scholar
Fazekas, M., and Tóth, I.J.. 2016. “From corruption to state capture: a new analytical framework with empirical applications from Hungary.” Political Research Quarterly 69 (2): 320–34.Google Scholar
Fazekas, M., Tóth, I.J., and King, L.P.. 2016. “An Objective Corruption Risk Index Using Public Procurement Data.” European Journal on Criminal Policy and Research 22 (3): 369–97.Google Scholar
Fazekas, M., and Kocsis, G.. 2017. “Uncovering high-level corruption: Cross-national objective corruption risk indicators using public procurement data.” British Journal of Political Science, 1–10. https://doi.org/10.1017/S0007123417000461.Google Scholar
Fisman, R. 2001. “Estimating the value of political connections.” The American economic review 91 (4): 1095–102.Google Scholar
Goldman, Eitan, Rocholl, Jörg, and So, Jongil. 2009. “Do Politically Connected Boards Affect Firm Value?” Review of Financial Studies 22 (6): 2331–60.Google Scholar
Graells, A.S. 2015. Public Procurement and the EU Competition Rules. London: Bloomsbury Publishing.Google Scholar
Granovetter, M. S. 1973. “The Strength of Weak Ties.” American Journal of Sociology 78 (6): 1360–80.Google Scholar
Greif, A. 1993. “Contract enforceability and economic institutions in early trade: The Maghribi traders' coalition.” The American Economic Review 83 (3): 525–48.Google Scholar
Hansson, L. 2012. “The private whistleblower: Defining a new role in the public procurement system.” Business and Politics 14 (2): 1–26.Google Scholar
Hart, O., and Holmstrom, B.. 1987. “The Theory of Contracts.” In Advances in Economic Theory, Fifth World Congress, edited by Bewley, T F.. Cambridge, United Kingdom: Cambridge University Press.Google Scholar
Hastie, T., Tibshirani, R., and Friedman, J.. 2009. The elements of statistical learning. New York: Springer.Google Scholar
Hessami, Z. 2014. “Political corruption, public procurement, and budget composition: Theory and evidence from OECD countries.” European Journal of Political Economy 34: 372–89.Google Scholar
Jancsics, D., and Jávor, I.. 2012. “Corrupt governmental networks.” International Public Management Journal 15 (1): 62–99.Google Scholar
Jaro, M.A. 1989. “Advances in record-linkage methodology as applied to matching the 1985 census of Tampa, Florida.” Journal of the American Statistical Association 84 (406): 414–20.Google Scholar
Karpievitch, Y.V., Hill, E.G., Leclerc, A.P., Dabney, A.R., and Almeida, J.S.. 2009. “An introspective comparison of random forest-based classifiers for the analysis of cluster-correlated data by way of RF++.” PloS one 4 (9): e7087.Google Scholar
Khwaja, A.I., and Mian, A.. 2005. “Do lenders favor politically connected firms? Rent provision in an emerging financial market.” The Quarterly Journal of Economics 120 (4): 1371–411.Google Scholar
Kidalov, M.V., and Snider, K.F.. 2011. “US and European public procurement policies for small and medium-sized enterprises (SME): a comparative perspective.” Business and Politics 13 (4): 1–41.Google Scholar
Kingston, C. 2007. “Parochial corruption.” Journal of Economic Behavior & Organization 63 (1): 73–87.Google Scholar
Klašnja, M. 2015. “Corruption and the incumbency disadvantage: theory and evidence.” The Journal of Politics 77 (4): 928–42.Google Scholar
Klein, B., and Leffler, K.B.. 1981. “The role of market forces in assuring contractual performance.” Journal of political Economy 89 (4): 615–41.Google Scholar
Laffont, J.J., and Tirole, J.. 1993. A theory of incentives in procurement and regulation. Cambridge, MA: MIT Press.Google Scholar
Lambsdorff, J.G., and Teksoz, S.U.. 2004. “Corrupt relational contracting.” In The new institutional economics of corruption, edited by Lambsdorff, J.G., Taube, M., and Schramm, M.. London: Routledge, 138–52.Google Scholar
Lambsdorff, J.G. 2002. “Making corrupt deals: contracting in the shadow of the law.” Journal of Economic Behavior & Organization, 48 (3): 221–41.Google Scholar
Lonsdale, C., Sanderson, J., Watson, G. and Peng, F. 2016. “Beyond intentional trust: supplier opportunism and management control mechanisms in public sector procurement and contracting.” Policy & Politics 44 (2): 289–311.Google Scholar
MacLeod, W.B. 2007. “Reputations, relationships, and contract enforcement.” Journal of economic literature 45 (3): 595–628.Google Scholar
Rosenbaum, M., Billinger, S., and Stieglitz, N.. 2013. “Private virtues, public vices: social norms and corruption.” International Journal of Development Issues 12 (3): 192–212.Google Scholar
Mungiu-Pippidi, A. 2013. “Controlling corruption through collective action.” Journal of Democracy 24 (1): 101–15.Google Scholar
Mungiu-Pippidi, A. 2006. “Corruption: Diagnosis and treatment.” Journal of democracy 17 (3): 86–99.Google Scholar
Murray, C.K., Frijters, P., and Vorster, M.. 2015. “Give and You Shall Receive: The Emergence of Welfare-Reducing Reciprocity,” discussion paper 9010, Institute for the Study of Labor.Google Scholar
North, D.C. 1991. “Institutions.” Journal of economic perspectives 5 (1): 97–112.Google Scholar
Portes, A., and Landolt, P.. 1996. “The downside of social capital.” American Prospect (26): 18–21.Google Scholar
PwC, London Economics, and Ecorys. 2011. “Public procurement in Europe: cost and effectiveness.” Available at http://ec.europa.eu/internal_market/publicprocurement/docs/modernising_rules/cost-effectiveness_en.pdf (accessed on 1 July 2018).Google Scholar
Rey, P., and Salanie, B.. 1990. “Long-term, short-term and renegotiation: On the value of commitment in contracting.” Econometrica: Journal of the Econometric Society, 597–619.Google Scholar
Rothstein, B. 2011. “Anti-corruption: the indirect ‘big bang’ approach.” Review of International Political Economy 18 (2): 228–50.Google Scholar
Søreide, T. 2002. “Corruption in Public Procurement. Causes, Consequences and Cures. Bergen: Chr. Michelsen Institute.Google Scholar
Shapiro, C., and Stiglitz, J.E.. 1984. “Equilibrium unemployment as a worker discipline device.” The American Economic Review 74 (3): 433–44.Google Scholar
Spiller, P.T. 2009. ” An institutional theory of public contracts: regulatory implications.” In Regulation, Deregulation, Reregulation: Institutional Perspectives, edited by Menard, C. and Ghertman, M.. Cheltenham: Edward Elgar, 45.Google Scholar
Tonoyan, V., Strohmeyer, R., Habib, M., and Perlitz, M.. 2010. “Corruption and entrepreneurship: How formal and informal institutions shape small firm behavior in transition and mature market economies.” Entrepreneurship theory and practice, 34 (5): 803–31.Google Scholar
Winkler, W.E. 1990. “String Comparator Metrics and Enhanced Decision Rules in the Fellegi-Sunter Model of Record Linkage.” Proceedings of the Section on Survey Research Methods.Google Scholar
Supplementary material: File

Popa supplementary material

Popa supplementary material 1

Download Popa supplementary material(File)
File 1.7 MB