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Article

Court Efficiency and Procurement Performance

The Scandinavian Journal of Economics. 2018. Vol. 120. No. 3. P. 826-858.
Coviello D., Moretti L., Spagnolo G., Valbonesi P.

Disputes over penalties for breaching a contract are often resolved in court. A simple model illustrates how inefficient courts can sway public buyers from enforcing a penalty for late delivery in order to avoid litigation, therefore inducing sellers to delay contract delivery. By using a large dataset on Italian public procurement, we empirically study the effects of court inefficiency on public work performance. We find that where courts are inefficient: i) public works are delivered with longer delays; ii) delays increase for more valuable contracts; iii) contracts are more often awarded to larger suppliers; and iv) a higher share of the payment is postponed after delivery. Other interpretations receive less support from the data.