DP21110 The Economics of Public Procurement

The economics of public procurement is an emerging subfield. Public procurement is large enough to matter for macro stabilization and long-run growth, yet it is not a frictionless component of “government purchases”: it is a rule-governed process that turns budgets into contracts, shaping prices, quality, delivery, and the distribution of public money. Using a five-stage procurement-cycle framework, this survey synthesizes evidence from four core areas: (1) how procurement demand transmits through composition, place, and production networks; (2) the size and sources of the wedge between authorized spending and delivered value; (3) how tender and award rules affect entry, bids, and value for money; and (4) how market structure, thin participation, and collusion risks condition performance. Three messages stand out: both public procurement design and contract awards have highly heterogeneous effects on firms and markets, the public procurement wedge is often large, and award prices alone are a noisy performance metric when quality and execution risks matter. We conclude with research priorities and a call for a cumulative “What Works for Public Procurement” evidence base.