Active and passive waste in government spending: evidence from a policy experiment

Bandiera, Oriana ORCID: 0009-0002-6817-793X, Prat, Andrea and Valletti, Tommaso (2008) Active and passive waste in government spending: evidence from a policy experiment. . Centre for Economic Policy Research (Great Britain), London, UK.

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Abstract

We propose a distinction between active waste and passive waste as determinants of the cost of public services. Active waste entails utility for the public decision maker (as in the case of bribery) whereas passive waste does not (as in the case of inefficiency due to red tape). To assess the empirical relevance of both forms of waste, we analyze purchases of standardized goods by Italian public bodies and exploit a policy experiment associated with a national procurement agency. A revealed preference argument implies that if public bodies with higher costs are more likely to buy from the procurement agency rather than from traditional suppliers, cost differences are more likely to be due to passive waste. We find that: (i) Some public bodies pay systematically more than others for observationally equivalent goods and such price differences are sizeable; (ii) Differences are correlated with governance structure: the central administration pays at least 22% more than semiautonomous agencies (local government is at an intermediate level); (iii) The variation in prices across public bodies is principally due to variation in passive rather than active waste; (iv) Passive waste accounts for 83% of total estimated waste.

Item Type:	Monograph (Discussion Paper)
Official URL:	http://www.cepr.org
Additional Information:	© 2008 Oriana Bandiera, Andrea Prat and Tommaso Valletti
Divisions:	Economics STICERD
Subjects:	H Social Sciences > HJ Public Finance
JEL classification:	H - Public Economics > H5 - National Government Expenditures and Related Policies > H57 - Procurement H - Public Economics > H1 - Structure and Scope of Government > H11 - Structure, Scope, and Performance of Government
Date Deposited:	30 May 2008 14:07
Last Modified:	11 Dec 2024 18:54
URI:	http://eprints.lse.ac.uk/id/eprint/5206

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