Individuals and Organizations as Sources of State Effectiveness and Consequences for Policy Design

transcript

Individuals and Organizations as Sources of State Effectivenessand Consequences for Policy Design

Michael BestColumbia

Jonas HjortColumbia

David SzakonyiGeorge Washington

Public Sector Efficiency and Effectiveness:Implications for Developing and Transition Countries,

SITE-Stockholm School of EconomicsDecember 15 2017

IntroductionI Same policy → different outcomes in different settings

I VAT in low/high income countries

I NREGA across India

I Post office returning mail

I Bureaucrats and public organizations different across settings

I How much of variation in policy outcomes due to bureaucracy?

I What do effective bureaucracies do differently?

I Towards: How does optimal policy depend on who implements it?

I We investigate these questions in the Russian public sector

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Procurement in RussiaI Decentralized procurement with centralized rules. 104,000

Federal, regional, municipal public bodies procure independently.

I No centralized civil service, procurement officers hired much likeprivate sector.

I Key: Organizations observed working with multiple bureaucrats &bureaucrats observed working with multiple organizations.

I Majority (52%) of purchases by electronic descending auction.

I Detailed data on all procurement available in online procurementregister – the Unified Register of Federal and Municipal Contracts

I We collect data on all auction requests, review protocols, bids,and final contracts 2011–2015

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What Happens When Bureaucrats Move?

−1 0 1 2Time (0 = last day with old bureaucrat)

Trajectory 1 to 1

4 to 4

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What Happens When Bureaucrats Move?

−1 0 1 2Time (0 = last day with old bureaucrat)

Trajectory 1 to 1

1 to 4

4 to 1

4 to 4

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Decomposing Variation in Prices PaidI Model outcome yi ∈ {log (pi) , ni} for item i purchased for

organization j by bureaucrat b (i, j) as

yi = Xiβ + α̃b(i,j) + ψ̃j + εi

I Xi includes log quantity, good FEs, month FEs, size, region

I Goal: Estimate magnitude of Var (α̃) and Var(ψ̃

)I 4 Challenges

1. Like-for-like comparisons: quality -adjusted prices2. Effects only identified within “connected sets” linked by mobility3. Causal identification requires “exogenous mobility”4. Sampling error inflates variances

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I 4 Challenges

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)I 4 Challenges

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)I 4 Challenges

1. Like-for-like comparisons: quality -adjusted prices

2. Effects only identified within “connected sets” linked by mobility3. Causal identification requires “exogenous mobility”4. Sampling error inflates variances

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)I 4 Challenges

1. Like-for-like comparisons: quality -adjusted prices2. Effects only identified within “connected sets” linked by mobility

3. Causal identification requires “exogenous mobility”4. Sampling error inflates variances

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)I 4 Challenges

1. Like-for-like comparisons: quality -adjusted prices2. Effects only identified within “connected sets” linked by mobility3. Causal identification requires “exogenous mobility”

4. Sampling error inflates variances

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)I 4 Challenges

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Decomposing Variation in Prices Paid

Yi =Xiβ + αb(i,j) + ψj + γs(b,j) + εi

Var (Yi) =Var(αb(i,j)

)+ Var (ψj) + . . .

Prices (P) (s.e.) Participation (N) (s.e.)(1) (2) (3) (4)

s.d. of Y 2.417 1.355s.d. of Y | good, month 1.646 1.241

s.d. of Bureaucrat Effects 1.031 (0.0462) 0.919 (0.0418)s.d. of Organization Effects 1.068 (0.0496) 0.888 (0.0468)s.d. of Total Bur + Org Effects 1.036 (0.00126) 0.710 (0.00358)

Adjusted R-squared 0.955 0.837Sample Size 11,228,122 11,228,122

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Crude Counterfactual: Improving Bureaucrats

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Counterfactual: Improving Bureaucrats & Organizations

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Correlates of Bureaucrat/Organization Effectiveness

I What do good and bad bureaucrats and organizations dodifferently?

I What attributes do good and bad bureaucrats have?

I Using detailed data on the levers they control at the “qualificationstage”, the “auction stage”, and “the contracting stage” – andhow firms respond to their behaviors

I Large number of rhs variables. For variable selection present

1. Pairwise regression coefficients (standardized rhs vars)

2. Post-LASSO coefficients

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I Large number of rhs variables. For variable selection present

1. Pairwise regression coefficients (standardized rhs vars)

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I Large number of rhs variables. For variable selection present1. Pairwise regression coefficients (standardized rhs vars)

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Pairwise Regressions Post−LASSO Regression

−0.10 −0.05 0.00 0.05 0.10 −0.10 −0.05 0.00 0.05 0.10

Supplier Turnover

Supplier Assets

Supplier log Employees

Number of Contract Revisions

Average of Losing Bids / Winning Bid

1[Winner is From Same Region]

1[Auction Held]

Number of Items Purchased

Success Rate

In−house Bureaucrat

Admission Rate to Auction

Number of Applicants

Time to Prepare Documents

Deposit / Reserve price

Number of Products

Lot Size

Standardized Coefficient

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Bid Preferences for Domestic Products

I Motivation: classic mercantilist “support local business”

I Each spring presidency issues list of goods receiving preferences

I Winner supplying foreign good receives 85% of winning bid

I Winner supplying domestic good receives 100% of winning bid

I Sources of time × product variation:

I Intra-year: Preferences switch on in late spring, off on 12/31

I Across goods: Different goods on list each year

I ⇒ Difference-in-differences strategy:

I ⇒ Triple-differences: Interact with α̂b, ψ̂j from regular auctions

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I Sources of time × product variation:I Intra-year: Preferences switch on in late spring, off on 12/31

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I Sources of time × product variation:I Intra-year: Preferences switch on in late spring, off on 12/31

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Average Policy Impact: Graphical Analysis

−0.4

−0.2

Treatment Group

Not Preferenced

Preferenced

−0.5 SD[−0.70]

0.5 SD[0.70]

2011 2012 2013 2014 2015

Difference between Groups: Preferenced − Unpreferenced

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Policy Impact Depends on Bureaucratic Effectiveness

● ●

●●

−0.4

−0.2

−1 0 1Bureaucrat Effectiveness

t Effe

1) Panel A: Heterogeneity in Effect on Price by Bureaucrat Effectiveness

● ●●

−0.4

−0.2

−1 0 1Organization Effectiveness

t Effe

1) Panel B: Heterogeneity in Effect on Price by Organization Effectiveness

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ConclusionI Procurement as window into determinants of state’s effectiveness

I Weber (1922) “Bureaucracy develops the more perfectly, the moreit is ‘dehumanized’... The individual bureaucrat cannot squirm outof the apparatus into which he has been harnessed”

I ∼ 60% of variation in prices paid due to bureaucrats & publicorganizations. Far from Weberian ideal.

I What do effective bureaucrats do?

I Attract entry by diverse firms: ⇒ policy to encourage participation

I Experienced/in-house burs better: ⇒ training/end-user feedback?

I Policy responses to limited effectiveness

I Optimal bid preferences decreasing in effectiveness

I Tailoring policy to capacity substitute for raising capacity

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I What do effective bureaucrats do?I Attract entry by diverse firms: ⇒ policy to encourage participation

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I What do effective bureaucrats do?I Attract entry by diverse firms: ⇒ policy to encourage participation

I Policy responses to limited effectivenessI Optimal bid preferences decreasing in effectiveness

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Individuals and Organizations as Sources of State Effectiveness and Consequences for Policy Design

Economy & Finance