London School of Economics EOPP: Economic Organisation and Public Policy Programme LSE
EOPP: Economic Organisation and Public Policy Programme

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

Oriana Bandiera and Andrea Prat (with Tomasso Valleti, Imperial College )

Abstract:

We propose a distinction between active waste (a situation where the presence of waste benefits the public decision maker, as in the case of bribery) and passive waste (pure inefficiency, possibly due to excessive red tape). We analyze purchases of several standardized goods by over 200 Italian public bodies and exploit a policy experiment that introduced a national procurement agency. A revealed preference argument implies that the decision to buy from the new procurement agency rather than from traditional suppliers can be used to distinguish between active and passive waste. Our results indicate that: (i) Different public bodies pay widely different prices for observationally equivalent goods, with centralized bodies paying on average at least 25% more than semi-autonomous bodies; (ii) Price differences are mostly due to passive rather than active waste — on average passive waste accounts for 79% to 92% of estimated waste; (iii) There is no trade-off between passive and active waste.

Related paper

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