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

Bandiera, Oriana, Prat, Andrea and Valletti, Tommaso (2008) Active and passive waste in government spending: evidence from a policy experiment. 6799. Centre for Economic Policy Research, 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
Library of Congress subject classification: H Social Sciences > HJ Public Finance
Journal of Economic Literature Classification System: 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
Sets: Collections > Economists Online
Departments > Economics
Research centres and groups > Suntory and Toyota International Centres for Economics and Related Disciplines (STICERD)
Rights: http://www.lse.ac.uk/library/usingTheLibrary/academicSupport/OA/depositYourResearch.aspx
Identification Number: 6799
Date Deposited: 30 May 2008 14:07
URL: http://eprints.lse.ac.uk/5206/

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