The Effect of Procurement Centralization on Government Purchasing Prices: Evidence from a Field Experiment

Ole Helby Petersen, Mads Dagnis Jensen, Yosef Bhatti

Research output: Contribution to journalJournal articleResearchpeer-review

Abstract

A fundamental question in public policy and management research is whether large-centralized or small-decentralized organizations perform best. Perhaps nowhere is this tradeoff more tangible than in the context of government procurement of goods and services, where even small differences in organizational efficiency can lead to significant differences in purchasing prices. In this article, we put the theoretical arguments concerning centralized versus decentralized procurement to a systematic empirical test. We conduct a randomized field experiment of public purchase of air travel in the Danish central government. Our findings suggest that centralized procurement is not associated with lower purchasing prices; if anything, centralized purchasing is slightly more costly than decentralized purchasing of identical products. However, centralized procurement may offer other benefits, such as economies of process, information, and compliance. We discuss theoretical and managerial implications of our findings and propose avenues for further research on centralized versus decentralized government purchasing.
Original languageEnglish
JournalInternational Public Management Journal
Number of pages19
ISSN1096-7494
DOIs
Publication statusPublished - 14 Jul 2020

Bibliographical note

Epub ahead of print. Published online: 14. July 2020

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