Seminar: Decio Coviello, European University Institute in Florence.

Title: Political Longevity and Collusion in Public Procurement Auctions.

We investigate the relationship between the time politicians remain in power and the functioning of public procurement auctions. If “it takes time to make friends”, one would expect long-lasting mayors to collude more with local bidders as far as political longevity increases. On the other hand, if mayors could learn to better administer the procurement process as far as they make experience, the opposite should hold. To disentangle between these two hypotheses, we use a dataset on the Italian municipal governments and all the public procurement auctions they administered between 2000 and 2005. Identification is achieved through the introduction of a two-term limit in March 1993: since the reform was not retroactive, mayors appointed right before the implementation could be reelected for two additional terms, while the others for one only. Assuming no manipulation of election timing, we use the year of election (before or after 1993) as an instrument for the actual time in office.

Our primary finding is that political longevity deteriorates public spending. In fact, it decreases the number of bidders and, most importantly, the winning rebate. Interesting-ly, we also find that the probability that the winning firm is an insider, or that the contract will be ex-post renegotiated, increases with political longevity.