DP11426 Court Efficiency and Procurement Performance

Author(s): Decio Coviello, Luigi Moretti, Giancarlo Spagnolo, Paola Valbonesi
Publication Date: August 2016
Keyword(s): Court efficiency, delay, enforcement cost, litigation, performance in contract execution, public procurement, time incentives
JEL(s): H41, H57, K41
Programme Areas: Public Economics, Industrial Organization
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=11426

Disputes over penalties for breaching a contract are often resolved in court. A simple model illustrates how inefficient courts can sway public buyers from enforcing a penalty for late delivery in order to avoid litigation, therefore inducing sellers to delay contract delivery. By using a large dataset on Italian public procurement, we empirically study the effects of court inefficiency on public work performance. We find that where courts are inefficient: i) public works are delivered with longer delays; ii) delays increase for more valuable contracts; iii) contracts are more often awarded to larger suppliers; and iv) a higher share of the payment is postponed after delivery. Other interpretations receive less support from the data.