Firms' Qualifications and Subcontracting in Public Procurement: An Empirical Investigation

Using a newly assembled dataset, we empirically investigate the effects of subcontracting on procurement auction prices in Italy. In this setting, the prequalifications required for firms aiming to bid on public contracts determine the firms' different subcontracting formats. We find that fully qualified firms in a position to choose whether to subcontract generally offer lower prices than partially qualified firms, which must proceed with mandatory subcontracts. This result indicates that the firms' voluntary arrangements tend to improve market performance, while imposed arrangements tend to worsen market performance, in the public procurement supply-chain.