This paper studies how affirmative action exemptions in public procurement can improve efficiency and government expenditures without harming disadvantaged business enterprise (DBE) utilization. I examine a unique program employed by the Iowa Department of Transportation, where prior to 2013 prime contractors were allowed an exemption from a project's affirmative action requirement if their history of DBE utilization was sufficiently high. I find that prime contractors use the exemption to smooth demands on capacity constrained DBEs, building a history of utilization during low demand periods and exploiting the resulting exemption during high demand. The exemption policy was unexpectedly eliminated in 2013, which I exploit to evaluate its effect on DBE utilization and procurement costs. I find that average DBE utilization was unchanged and bids rose on affirmative action contracts.
"Affirmative Action Exemptions and Capacity Constrained Firms."
American Economic Journal: Economic Policy,
Firm Behavior: Empirical Analysis
State and Local Government: Other Expenditure Categories
Economics of Minorities, Races, Indigenous Peoples, and Immigrants; Non-labor Discrimination
Economics of Gender; Non-labor Discrimination