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Disadvantaged business enterprise goals in government procurement contracting: an analysis of bidding behavior and costs

Research output: Contribution to journalJournal article

Published

Journal publication date07/2012
JournalInternational Journal of Industrial Organization
Journal number4
Volume30
Number of pages12
Pages377-388
Early online date24/12/11
Original languageEnglish

Abstract

Programs that encourage the participation of disadvantaged business enterprises (DBE) as subcontractors have been a part of government procurement auctions for over three decades. In this paper, we examine the impact of a program that requires prime contractors to subcontract out a portion of a highway procurement project to DBE firms. We study how DBE subcontracting requirements affect bidding behavior in federally funded projects. Within a symmetric independent private value framework, we use the equilibrium bidding function to obtain the cost distribution of firms undertaking projects either with or without subcontracting goals. We then use nonparametric estimation methods to uncover and compare the cost of firm bidding on a class of asphalt projects related to surface treatment in Texas. The analysis shows little differences in the cost structure between projects that have subcontracting goals and those that do not.