Diversity versus Equity in Government Contracting

Rosa, Benjamin (2022): Diversity versus Equity in Government Contracting.

Abstract

Many governments aim to give disadvantaged firms an equal opportunity to compete for government contracts and will use diversity in awards as a measure of success. I show theoretically that, when ex ante identical disadvantaged firms differ in an identifiable but irrelevant characteristic, diversity in awards may not translate into equity in opportunity—as buyers may discriminate within the disadvantaged group. Subcontracting data on Disadvantaged Business Enterprises in New Mexico show that inequities can arise in practice.

• Item Type: MPRA Paper
• Language: English
• Keywords: Affirmative action, statistical discrimination, government contracting.
• Subjects: D - Microeconomics > D6 - Welfare Economics > D63 - Equity, Justice, Inequality, and Other Normative Criteria and Measurement; H - Public Economics > H5 - National Government Expenditures and Related Policies > H57 - Procurement; J - Labor and Demographic Economics > J7 - Labor Discrimination > J71 - Discrimination; L - Industrial Organization > L2 - Firm Objectives, Organization, and Behavior > L24 - Contracting Out ; Joint Ventures ; Technology Licensing

References

Arrow, K. J. (1973). The Theory Of Discrimination, pp. 3–33. Princeton University Press.

Athey, S., D. Coey, and J. Levin (2013, February). Set-asides and subsidies in auctions. American Economic Journal: Microeconomics 5(1), 1–27.

Coate, S. and G. C. Loury (1993). Will affirmative-action policies eliminate negative stereotypes? American Economic Review 83(5), 1220–1240.

Craig, A. C. and R. G. Fryer (2018). Complementary Bias: A Model of Two-Sided Statistical Discrimination. Unpublished.

De Silva, D. G., T. Dunne, G. Kosmopoulou, and C. Lamarche (2012). Disadvantaged business enterprise goals in government procurement contracting: An analysis of bidding behavior and costs. International Journal of Industrial Organization 30(4), 377–388.

De Silva, D. G., T. P. Hubbard, and G. Kosmopoulou (2020). An evaluation of a bidder training program. International Journal of Industrial Organization 72, 102661.

DOJ (2010). Horizontal merger guidelines. Department of Justice and the Federal Trade Commission.

Fang, H. and A. Moro (2011). Chapter 5 - theories of statistical discrimination and affirmative action: A survey. Volume 1 of Handbook of Social Economics, pp. 133–200. North-Holland.

Fang, H. and P. Norman (2006). Government-mandated discriminatinatory policies: Theory and evidence. International Economic Review 47(2), 361–389.

Fryer, R. G. (2007). Belief flipping in a dynamic model of statistical discrimination. Journal of Public Economics 91(5), 1151–1166.

Fryer, R. G. and G. C. Loury (2005). Affirmative action in winner-take-all markets. Journal of Economic Inequality 3, 263–280.

Guha, B. and P. Roy Chowdhury (2022). Affirmative action in the presence of income heterogeneity. Games and Economic Behavior 132, 510–533.

Marion, J. (2009). How Costly Is Affirmative Action? Government Contracting and California’s Proposition 209. The Review of Economics and Statistics 91(3), 503–522.

Moro, A. and P. Norman (2004). A general equilibrium model of statistical discrimination. Journal of Economic Theory 114, 1–30.

NMDOT (2012). Disadvantaged business enterprise program manual. New Mexico Department of Transportation Office of Equal Opportunity Programs.

Premier Quantitative Consulting (2016). Barriers and factors affecting minority business enterprises: A review of existing disparity studies. Technical report, U.S. Department of Commerce, Minority Business Development Agency.

Rosa, B. V. (2020). Subcontracting Requirements and the Cost of Government Procurement. Forthcoming, RAND Journal of Economics.