Lobbying and Contract Delegation in Public Procurement

Interest groups exert influence on legislators' decisions about how to organize the contracting process in public procurement. Traditionally, centralized contracting structures have been favored to avoid allocative inefficiency. However, legislators have recently started to allow more and more contract delegation in public procurement projects. Different interest groups argue in favor and against this tendency. The objective of this paper is to judge from a normative perspective what socially efficient contracting structures are and from a positive perspective what contracting structure we can expect to find as equilibria of an endogenous lobby formation game. From the normative perspective, it is shown that both contracting structures can be socially efficient. Furthermore, the conditions under which a certain contracting structure is socially superior are identified. From the positive perspective the main result shows that we can have equilibria of the lobby formation game with socially efficient contracting structures and with socially inefficient contracting structures. Again, the circumstances under which the different equilibria occur are identified.