Affirmative Action and the Utilization of Minority- and Women-Owned Businesses in Highway Procurement

The Federal Highway Administration (FHWA) mandates the use of affirmative action for minorityand women-owned firms by states in awarding federally funded road construction projects. In this paper, I document the variation of affirmative action across states over the history of the FHWA program, and I provide evidence regarding the effectiveness of affirmative action at increasing purchases from disadvantaged business enterprises (DBEs). DBE goals are in general effective at increasing purchases from firms owned by minorities, yet have little effect on women-owned enterprises. The effect of DBE goals are stronger when they are more likely to be binding and in states with an apparently stricter enforcement regime. Affirmative action also varies across projects within a state. Using data from California state highway procurement, and an instrumental variables approach to obtain exogenous variation in a project’s DBE goal, I find that raising the affirmative action goal on a particular project by 10 percentage points increases the fraction of the contract subcontracted from DBEs by 5.4 percentage points. 1 Email: [email protected]. I appreciate the helpful comments of two anonymous referees, Rob Fairlie and participants at the 2007 WEAI Annual Conference in Seattle. Parita Suaphan provided research assistance. Funding from the UC Institute for Labor and Employment and UNC Kenan Flagler Institute is gratefully acknowledged.