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¶
Judicial enforcement is essential for the rule of law, yet the form of enforcement can generate economic inefficiency. We study this tension using bid-level data on court-mandated pharmaceutical procurement in Sao Paulo, Brazil (2009--2019). With item, time, and buyer fixed effects, court orders raise prices by 5.4% and reduce competition by 5.4%. Exploiting an institutional distinction between urgent purchases that share planning constraints but differ in penalty exposure, we isolate the "under the gun" effect: judicial sanctions alone raise costs by 23--30%. This premium operates entirely through demand fragmentation---sanctions prevent order aggregation---not through officials accepting higher unit prices. The finding speaks to a general asymmetry in accountability design: when non-completion is punished more severely than overpayment, compliance crowds out cost-efficiency.
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.
Half supply-side, half demand-side
Supplier fixed effects (2,202 firms) attenuate the urgency coefficient by 52% (from 0.051 to 0.025), revealing that roughly half the premium reflects firms charging more when the purchase is court-mandated, and half reflects officials selecting into worse matches under time pressure. A placebo test on items never subject to litigation confirms the premium is absent where judicial pressure plays no role (coefficient \(-0.020\), n.s.).