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Working paper

Efficient design of set-aside auctions for small businesses: an empirical analysis

Marco Fanno Working Paper . University of Padova. University of Padova, 2019. No. 240.
Government support to small business enterprises (SBEs) through set- aside (SA) public procurement auctions is a common practice. The effect of the SA mechanism is, however, ambiguous. On the one hand, SA auc- tions can attract more SBEs to compete; on the other hand, SA auctions restrict the entry of—possibly—more cost-efficient large firms. We inves- tigate SA auctions’ effect by exploiting an original Russian database on public procurement e-auctions for granulated sugar (a largely homoge- neous good) in the period 2011-2013. To identify the causal effect of SA auctions, we overcome two endogeneity issues: procurers’ choice of SA for- mat and firms’ decision to bid. In an empirical setting where confounding elements are minimized, we found that SA auctions’ effect largely depends on both the reserve price value and the level of competition. We found that there exists an optimal interval for the reserve price where SA auc- tions record lower procurement prices, as compared to non-SA auctions.