The Role of Reputation when Awarding Contracts: Empirical Evidence from a Vendor Rating System (with Giancarlo Spagnolo and Riccardo Pacini)
Speaker : Francesco Decarolis (Boston University)
Francesco Decarolis is assistant Professor of Economics at Boston University – Boston (MA), USA –, Junior Fellow at the Hariri Institute for Computing and Computational Science (Boston University), Adjunct Senior Fellow at the L. Davis Insitute for Health Economics (Wharton, University of Pennsylvania) and collaborates with the research center EIEF (Bank of Italy). He holds a BA in Economics from Universita’ Bocconi, Milan, and a MA and PhD in Economics from the University of Chicago. Prior to joining Boston University, he worked at the Bank of Italy, the University of Wisconsin Madison and the University of Pennsylavnia. His research is on Industrial Organization, with a focus on public procurement, auctions and health economics. His main publications as well as more details about his research activity are available at: http://people.bu.edu/fdc/
Authors : Francesco Decarolis, Giancarlo Spagnolo and Riccardo Pacini
Abstract : Reputational incentives are a powerful mechanism to improve suppliers’ performance, so strong to possibly start to influence suppliers’ behavior even before they are put in place. This paper presents a real experiment that provides empirical evidence on the effect of announcing the use of past performance information when awarding a public procurement contract. Suppliers react improving actual performance of the contract. Explicitly linking past (actual) performance to actual (future) award may help to solve the moral hazard problem in public procurement. While this is allowed by the US legislation, EU public procurement directives, which place competition above all, forbids to use past performance information at the awarding stage. However, this experiment suggests that the gains from avoiding suppliers’ moral hazard when executing the contract may be higher than those from enforcing competition always and everywhere.