Indirect Savings from Public Procurement Centralization
American Economic Journal: Economic Policy (Forthcoming)
Centralization of public procurement can lower prices for the government’s
direct purchase of goods and services. This paper focuses
on indirect savings. Public administrations that do not procure
directly through a central procurement agency might benefit
from the availability of centrally procured goods. We exploit the
introduction of a central purchasing agency in Italy and find that
prices came down by 22% among administrations that bought autonomously.
These indirect effects appear to be driven by informational
externalities, especially for less competent public buyers
purchasing technologically more complex goods. Accounting for indirect
savings increases the estimate of direct ones.