Benjamin Rosa
Interests: Industrial Organization, Public Economics

Job Market Paper

Subcontracting Requirements and the Cost of Government Procurement

Government procurement contracts are frequently subject to policies that specify, as a percentage of the total project, a subcontracting requirement for the utilization of historically disadvantaged firms. I study how such subcontracting policies affect procurement auction outcomes using administrative data from New Mexico's Disadvantaged Business Enterprise (DBE) Program. My analysis is based on a procurement auction model with endogenous subcontracting. Theoretically, I show that subcontracting requirements need not translate into substantially higher procurement costs – even when disadvantaged firms are relatively more costly. The intuition behind this result is that subcontracting programs require that prime contractors select their subcontractors from a common pool of disadvantaged firms, which reduces the private information prime contractors have on their own project-completion costs. As a result of losing private information, prime contractors strategically reduce their markups in their bids, and the reduction in markups can be sufficiently high to mitigate the cost increases from using more costly subcontractors. I estimate an empirical version of the model and find that New Mexico's past subcontracting requirements led to only small increases in procurement costs.

Research

Resident Bid Preference, Affiliation, and Procurement Competition: Evidence from New Mexico

conditionally accepted, Journal of Industrial Economics
In public procurement auctions, governments routinely offer preferences to qualified firms in the form of bid discounts. Previous studies on bid discounts do not account for affiliation – a form of cost dependence between bidders that is likely to occur in a public procurement setting. Utilizing data from the New Mexico Department of Transportation’s Resident Preference Program, this paper uses an empirical model of firm bidding and entry behavior to investigate the effect of affiliation on auctions with bid discounting. I find evidence that firms have affiliated project-completion costs and show how this type of affiliation changes preference auction outcomes.

Teaching Experience

Instructor for Introduction to Microeconomics (Spring 2016)
Head Teaching Assistant for Introduction to Microeconomics (Fall 2015, Fall 2016)
Recitation Instructor for Introduction to Microeconomics (Spring 2014, Fall 2014, Spring 2015)
Recitation Instructor for Intermediate Microeconomics (Fall 2013)

References

Hanming Fang
215-898-7767
hanming.fang@econ.upenn.edu

Katja Seim
215-898-8213
kseim@wharton.upenn.edu

Jose Miguel Abito
215-746-3134
abito@wharton.upenn.edu