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Working Paper

Disadvantaged Business Enterprise Goals in Government Procurement Contracting: An Analysis of Bidding Behavior and Costs

Programs that encourage the participation of disadvantaged business enterprises (DBE) as subcontractors have been a part of government procurement auctions for over three decades. In this paper, we examine the impact of a program that requires prime contractors to subcontract out a portion of a highway procurement project to DBE firms. We study how DBE subcontracting requirements affect bidding behavior in federally funded projects. Within a symmetric independent private value framework, we use the equilibrium bidding function to obtain the cost distribution of firms undertaking projects either with or without subcontracting goals. We then use nonparametric estimation methods to uncover and compare the cost of firms bidding on a class of asphalt projects related to surface treatment in Texas. The analysis shows little differences in the cost structure between auctions that have subcontracting goals and those that do not.

Working Papers of the Federal Reserve Bank of Cleveland are preliminary materials circulated to stimulate discussion and critical comment on research in progress. They may not have been subject to the formal editorial review accorded official Federal Reserve Bank of Cleveland publications. The views expressed in this paper are those of the authors and do not represent the views of the Federal Reserve Bank of Cleveland or the Federal Reserve System.


Suggested Citation

Silva, Dakshina de, Timothy Dunne, Georgia Kosmopoulou, and Carlos Lamarche. 2011. “Disadvantaged Business Enterprise Goals in Government Procurement Contracting: An Analysis of Bidding Behavior and Costs .” Federal Reserve Bank of Cleveland, Working Paper No. 11-02. https://doi.org/10.26509/frbc-wp-201102