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American Economic Review: Vol. 99 No. 4 (September 2009)

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Active and Passive Waste in Government Spending: Evidence from a Policy Experiment

Article Citation

Bandiera, Oriana, Andrea Prat, and Tommaso Valletti. 2009. "Active and Passive Waste in Government Spending: Evidence from a Policy Experiment." American Economic Review, 99(4): 1278-1308.

DOI: 10.1257/aer.99.4.1278

Abstract

We propose a distinction between active and passive waste as determinants of the cost of public services. Active waste entails utility for the public decision maker, whereas passive waste does not. We analyze purchases of standardized goods by Italian public bodies and exploit a policy experiment associated with a national procurement agency. We find that: (i) some public bodies pay systematically more than others for equivalent goods; (ii) differences are correlated with governance structure; (iii) the variation in prices is principally due to variation in passive rather than active waste; and (iv) passive waste accounts for 83 percent of total estimated waste. (JEL H11, H57, H83)

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Authors

Bandiera, Oriana (London School of Economics)
Prat, Andrea (London School of Economics)
Valletti, Tommaso (Imperial College London and U Rome "Tor Vergata")

JEL Classifications

H11: Structure, Scope, and Performance of Government
H57: National Government Expenditures and Related Policies: Procurement
H83: Public Administration; Public Sector Accounting and Audits


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