Working Paper: CEPR ID: DP9651
Authors: Jeff Butler; Enrica Carbone; Pierluigi Conzo; Giancarlo Spagnolo
Abstract: There is widespread concern that favoring suppliers with good past performance, a standard practice in private procurement, may hinder entry by new firms in public procurement markets. In this paper we report results from a laboratory experiment exploring the relationship between reputation and entry in procurement. We implement a repeated procurement game with reputational incentives for quality and the possibility of entry. We allow also the entrant to start off with a positive reputational score. Our results suggest that while some past-performance based reputational mechanisms do reduce the frequency of entry, appropriately designed mechanisms can significantly increase it. Moreover, the reputational mechanism we investigate typically increases quality but not prices, suggesting that well designed mechanisms may generate very large gains for buyers and taxpayers.
Keywords: Bid Preferences; Entry; Feedback Mechanisms; Outsourcing; Past Performance; Procurement; Quality Assurance; Reputation; Vendor Rating
JEL Codes: H57; L14; L15
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| poorly calibrated reputational mechanisms (D83) | reduced entry (R38) |
| properly calibrated reputational mechanism (D79) | increased entry (F29) |
| reputational mechanism (D82) | enhanced quality provision (L15) |
| positive reputational score (D79) | increased entry (F29) |
| reputational mechanism (D82) | increased quality provision (L15) |