Paying over the odds at the end of the fiscal year. Evidence from Ukraine

Governments are the largest buyers in most countries. They tend to operate annually expiring budgets and spend disproportionately large amounts at year-end. This paper is the first to investigate whether supplier firms increase prices at year-end to benefit from this behaviour. We develop a novel method using neural networks to estimate firms margins from the bidding behaviour of other firms in procurement auctions. We use a dataset of Ukrainian government procurement between 2017 and 2021 to document significantly higher prices and supplier profit margins at year-end. We demonstrate how results change depending on the type of good, the length of the buyer–supplier relationship, and the impact of Covid-19. Finally, we provide policy suggestions on how funds could be saved.