Working Papers¶
Bitter Pills to Swallow: the Enforcement Costs of Health Litigation¶
with Paulo Furquim de Azevedo (updated February, 2024) | PDF
Abstract
Public health procurement is shaped not only by administrative choices but also by judicial decisions that enforce the law on public buyer units. Judicial enforcement is costly for two reasons. First, as mandatory purchases are invariably urgent, judicial enforcement undermines procurement planning. Second, as judicial sanctions for noncompliance are severe, auctioneers have higher incentives to maximize tender success at the expense of higher prices, which we call the "under the gun" effect. Unique data on health litigation and procurement of prescription and nonprescription drugs allow us to estimate the overall enforcement costs and the "under the gun" effect. Judicial enforcement implies (i) higher negotiated prices (from 30.73% to 44.37%), (ii) fewer participant firms (from 28.63% to 32.21%), (iii) fewer bids (from 39.40% to 45.93%), and (iv) a lower probability of success (from 38.56% to 48.66%) in urgent tenders in comparison with ordinary tenders. To estimate the "under the gun" effect, we utilize urgent administrative tenders that are not subject to judicial sanctions. We estimate that judicial sanctions increase prices between 8.83% and 9.97%. Thus, judicial enforcement compels the executive branch to carry out the purchases, which generates high costs to the public budget. These results suggest that judges should consider the social costs associated with the enforcement of court decisions when the judiciary acts as a policymaker.
Media coverage
SMEs and Public Procurement: the Costs of Restricting Tenders¶
(updated February, 2024) | PDF
Abstract
While there are numerous examples of policies that benefit small and medium-sized enterprises (SMEs) worldwide, research offers little direct evidence on the benefits of such policies for the economy. Additionally, assessments of the costs of implementing such policies are practically ignored in the literature. This paper exploits a quasi-experimental variation from a program incentivizing the restriction of public tenders to SMEs in Sao Paulo, Brazil, to estimate this policy's costs. The way that this institutional change occurred allows me to assess those costs only indirectly. Using detailed data on public procurement and a variation of the standard DiD method (difference-in-differences in reverse), I estimate the pre-intervention effects of the policy shift. I find that before the policy shift, for group 65 (the 'switched' group) in comparison with other groups (the 'always treated' group): (i) the negotiated prices were lower (between 4.58% and 8.08%); (ii) the number of participants was approximately 22% higher; and (iii) the number of valid bids was approximately 25% higher. These results suggest that the policy of incentivizing the restriction of public tenders to SMEs may severely undermine the quality and efficiency of the public procurement process. Finally, before the policy change, sellers who won tenders for group 65 were more distant from the public buyer units (approximately 4 km). This result may indicate that the policy change has successfully induced more local suppliers to win more bids for this group of items.
Media coverage
Frequent Losers in Public Tenders: Anticompetitive Behavior or Bad Luck?¶
with Paulo Furquim de Azevedo (updated February, 2024) | PDF
Abstract
We propose frequent losers (FL)---firms that never win yet participate in abnormally many public tenders---as a screening marker for cover bidding in procurement auctions. Using 4.5 million tender-items from Sao Paulo's BEC platform (2009--2019), we identify 2,735 FL firms via an IQR-based threshold. FL presence is associated with 4--9% higher negotiated prices (OLS with item, year, and purchasing-unit fixed effects). External validation shows 7.1% of FL firms co-participate with CADE-convicted cartelists, 3.5 times the rate expected by chance. A leave-one-out instrumental variable yields a 21% price markup (F = 396), consistent with OLS attenuation. Bajari--Ye tests reject exchangeability and conditional independence for FL bid residuals. The screen requires only participation data, making it deployable by any competition authority with electronic procurement records.