Bitter Pills to Swallow¶
The Enforcement Costs of Health Litigation
Insper Institute of Education and Research, Sao Paulo, Brazil
23--30% Price premium from judicial sanctions alone (the "under the gun" effect)
Abstract¶
Public health procurement is shaped not only by administrative decisions but also by judicial interventions that compel urgent purchases. These court-mandated procurements carry substantial fiscal costs because they undermine procurement planning and expose officials to sanctions that incentivize compliance over cost-efficiency---a mechanism we term the "under the gun" effect. Using granular bid-level data on pharmaceutical procurement in Sao Paulo, Brazil (2009--2019), with item, time, and buyer fixed effects, we estimate that judicial enforcement increases reference prices by 2.7--17.8%, raises negotiated prices by 3.1--17.2%, and reduces bidder participation by 4.1--10.7%. Isolating the sanction channel by comparing litigated and administrative urgent purchases, we find judicial pressure alone raises prices by 23.2--30.2%. These findings highlight the economic burden of judicial enforcement on public budgets and suggest that legal mandates should weigh procurement efficiency alongside individual rights.
JEL Classification: D44 D73 H51 H57 I18 K41
Keywords: public procurement health litigation enforcement costs judicial mandates Brazil
Key Findings¶
Judicial mandates raise procurement costs
Court-ordered purchases increase reference prices by 2.7% and negotiated prices by 5.4% compared to ordinary procurement, after controlling for item, year, and buyer fixed effects.
Competition declines under judicial pressure
Litigated purchases attract 5.5% fewer bidding firms, reducing competitive pressure and contributing to higher prices.
The 'under the gun' effect is substantial
When comparing litigated purchases to administrative urgent purchases---which share the same urgency but lack judicial sanctions---the price premium is 23--30%. This isolates the pure effect of judicial enforcement pressure on procurement officials.
Officials accept worse terms to comply
Tender success rates are 2.1 percentage points higher for litigated purchases, indicating that procurement officials accept less favorable bids to meet court deadlines.