Working Paper: NBER ID: w16851
Authors: Susan Athey; Dominic Coey; Jonathan Levin
Abstract: Set-asides and subsidies are used extensively in government procurement and natural resource sales. We analyze these policies in an empirical model of U.S. Forest Service timber auctions. The model fits the data well both within the sample of unrestricted sales where we estimate the model, and when we predict (out of sample) bidder entry and prices for small business set-asides. Our estimates suggest that restricting entry to small businesses substantially reduces efficiency and revenue, although it does increase small business participation. An alternative policy of subsidizing small bidders would increase revenue and small bidder profit, while eliminating almost all of the efficiency loss of set-asides, and only slightly decreasing the profit of larger firms. We explain these findings by connecting to the theory of optimal auction design.
Keywords: setasides; subsidies; auctions; government procurement; timber auctions
JEL Codes: D44; H57; L53
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Subsidy for small bidders (D44) | Revenue (H29) |
| Subsidy for small bidders (D44) | Efficiency Loss (D61) |
| Subsidy for small bidders (D44) | Small bidder profit (D44) |
| 6% Subsidy (H20) | Timber volumes won by small firms (L73) |
| Subsidy for small bidders (D44) | Auction Prices (D44) |
| Setasides (Y91) | Efficiency (D61) |
| Setasides (Y91) | Revenue (H29) |