Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/261382 
Year of Publication: 
2022
Series/Report no.: 
ZEW Discussion Papers No. 22-030
Publisher: 
ZEW - Leibniz-Zentrum für Europäische Wirtschaftsforschung, Mannheim
Abstract: 
A set-aside restricts participation in procurement contests to targeted firms. Despite being widely used, its effects on actual competition and contract outcomes are ambiguous. We pool a decade of US federal procurement data to shed light on this empirical question using a two-stage approach. To circumvent the lack of exogenous variation in our data, as a first step we draw on random forest techniques to calculate the likelihood of a tender being set aside. We then estimate the effect of restricted tenders on pre- and postaward outcomes using an inverse probability weighting regression adjustment. Set-asides prompt more firms to bid - that is, the increase in targeted bidders more than offsets the loss of untargeted. During the execution phase, set-aside contracts incur higher cost overruns and delays. The more restrictive the setaside, the stronger these effects. In a subset of our data we leverage an expected spike in set-aside spending and we find no evidence of better performance by winners over a ten-year period.
Subjects: 
small businesses
set-aside
competition
procurement
public contracts
random forest
firm dynamics
JEL: 
D22
H32
H57
L25
Document Type: 
Working Paper

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