BICEPS/SSE Riga Research Seminar: Kamikazes in Public Procurements

We are happy to invite you to a BICEPS/SSE Riga research seminar, which will take place on Thursday, August 24, at 17:00 at SSE Riga, room 411.

We are delighted to welcome Alminas Žaldokas as the speaker. Alminas is an Associate Professor in Finance at the Hong Kong University of Science and Technology (HKUST). His research focuses on the interaction between firm decisions in the financial and in the product markets. In particular, he studies corporate finance decisions that relate to the firm investment in innovation, the formation of collusive arrangements between firms, and the facilitation of ESG practices. Alminas Žaldokas has published in journals such as Journal of Financial Economics, Review of Financial Studies, Journal of Accounting Research, Management Science, RAND Journal of Economics, Journal of International Economics, and Journal of Financial Intermediation. Read more about the speaker here.

Title: Kamikazes in Public Procurements (co-authored with Dimas Fazio, National University of Singapore)

Time: Thursday, August 24, 17:00

Venue: SSE Riga, room 411

Abstract

Using granular auction data on 15 million item purchases in Brazilian public procurements between 2005-2021, we document a widespread pattern that the lowest bidder (“kamikaze”) does not satisfy required formalities after the auction is concluded, which allows the second-lowest bid to win the auction. Such a pattern can be observed in up to 15-20% of procurement auctions and results in 15-17% higher procurement prices as compared to similar auctions procuring the same product or service items, organized by the same government institutions, and even having the same winning firm. Kamikaze firms are smaller, younger, and tend to be co-owned by the same ultimate owner as the winning firm. Using observed kamikaze behaviour as a bid rigging marker, we measure how financial constraints endogenous to collusion affect real non-market outcomes. We see more hospital deaths in the four quarters after an increased fraction of procurement auctions involving kamikazes in those hospitals. Similarly, we observe an increase in the road accidents following the road service contracts involving kamikaze firms.