Estimation of electronic procedures effects in public procurement under favoritism

Abstract

This paper investigates the effects of electronic procedures for supplier selection in public procurement multi criteria auctions (with a selection of a winner based not only on the price criterion) for the results of research and development (R&D) work in Russia. The electronic procedures in public procurement can increase the number of bidders and lead to lower final contract prices. However, in the presence of favoritism, the effect of electronic procedures may be limited. To identify and evaluate the effects of introduction of electronic procedures, we collected microdata on 4517 composite auctions for R&D results for the period from 12/16/2016 to 12/20/2021. Until 2019, there were practically no electronic multi criteria auctions, and starting from 2019, all multi criteria auctions were in electronic form, which creates quasi-experimental conditions. Favoritism is evaluated based on the frequency of interaction between the customer and the supplier. The results of econometric modeling suggest that the introduction of the electronic procedures do increase competition in multi criteria auctions and lead to lower final contract prices, but the effect is weaker in auctions with potentially affiliated customer and supplier. Moreover, one of the main channels of the negative effect of favoritism is inflated quality criterion scores of affiliated suppliers.