Favoritism in Public Procurement: Evidence from Sweden

We study favoritism in public procurement of cleaning service contracts in Sweden 1990-1998. Cleaning services are a low-tech, clearly defined product with easy entry and no ex-ante quality differences. We study a period where the law allowed municipalities high degrees of freedom in choosing the winner. In our data, the lowest bid does not win 61% of the time, and municipalities pay on average 38% more than the lowest bid. Municipal behavior systematically correlates with the composition of the municipal council: councils with the largest majorities (whether rightor left-wing) put no weight on price in determining the winner. Our data and results demonstrate that favoritism may quickly occur even in a highly non-corrupt society once the rules allow for it, and whether or not it occurs is systematically linked to some political fraction having high control over decision-making.