The Impact of Administrative Burdens on Market Competition in Government Contracting—Trade-offs between Accountability and Competition

• In Event: The Trade-Offs of Contracting in the Public Sector

Abstract

Background and Research Question

The fundamental justification for government contracting is to introduce market competition, which theoretically reduces costs and improves outcomes. However, competitive environments are often difficult to achieve, with markets less competitive than expected. Government requirements and documentation are frequently cited as barriers to participation, yet research inadequately addresses factors driving competition variations. This study examines: (1) What administrative factors explain market competition in government contracting? and (2) How can governments improve competition? We investigate how state-imposed administrative burdens—specifically learning costs and compliance costs—affect competition levels, and whether extending solicitation durations can mitigate these burdens.

Data, Sample, and Methods

This study analyzes data from Taiwan’s government e-procurement system. The dataset comprises 79,968 contracts and 184,550 bids awarded between January 1, 2023, and December 31, 2024. Market competition is operationalized using two metrics: the number of participating bidders for a contract, and whether participating bidders are disqualified due to administrative non-compliance during initial screening.

To isolate the relationship between administrative burdens and market competition, our regression models incorporate various fixed effects to account for unobserved factors. We include agency-by-year-by-month fixed effects to account for the budgeting cycle of specific government agencies and any time-varying agency characteristics. Product/service category-by-year-by-month fixed effects control for seasonal patterns affecting specific types of procurements and the inherent differences in supplier availability across procurement categories. We also incorporate vendor fixed effects, enabling us to examine how the same vendors perform across different procurement opportunities with varying administrative requirements.

Findings and Contribution

Results show that both learning costs and compliance costs significantly reduce market competition. Increasing bidding instructions' length (learning cost) decreases number of participating bidders for a contract, while additional document and deposit requirements (compliance costs) also negatively affect participation. Longer solicitation periods partially offset compliance costs' effects but don't mitigate learning costs' impact.

The findings reveal that extending the solicitation window beyond a certain threshold can effectively neutralize the negative impact of deposit requirements on bidder participation. Similarly, when the solicitation period exceeds a specific duration, the effect of document requirements on disqualification becomes statistically insignificant.

Previous studies suggest that administrative burden is not only consequential but also distributive. This paper finds that disadvantaged vendors (small businesses, disability workshops, aboriginal and female-owned organizations) suffer more from administrative burdens and benefit more from extended solicitation periods. This highlights equity implications in procurement design choices and suggests that reducing burdens or extending solicitation periods could particularly benefit historically underrepresented contractors.

These results highlight that while administrative requirements in contracting serve accountability purposes, extending solicitation periods can help balance these needs with fostering competition. This study applies administrative burden frameworks to business-government interactions, offering procurement officials practical strategies for enhancing competition. The research also provides a foundation for examining trade-offs between regulatory controls and market efficiency, offering actionable insights for designing more competitive procurement processes.

Authors

• Yung-Yu Tsai, National Chengchi University
  Presenting Author

• Wan-Ju Hung, Texas Tech University
  Non-Presenting Co-Author