Research

In 2016, the Brazilian construction firm Odebrecht was fined 2.6 billion USD by the US Department of Justice. It was the largest corruption case ever prosecuted under the US Foreign Corrupt Practices Act. Our examination of judicial documents and media reports on this case provides new insights on the workings of corruption in the infrastructure sector. Odebrecht paid bribes for two reasons: to tailor the terms of the auction in its favor, as well as to obtain favorable terms in contract renegotiations. In projects where Odebrecht paid bribes, costs increased by 70.8 percent on average, compared with 5.6 percent for projects with no bribes. We also find that bribes and profits made from bribing were smaller than documented in most previous studies, in the range of one to two percent of the cost of a project.

How do firms respond when government regulation raises their costs in markets where the government itself is the buyer? I link Chilean labor-market data to administrative procurement records containing transactions, all submitted bids, and repeated buyer–supplier relationships. Exploiting differences in exposure to Chile’s minimum-wage increases since 2022, I find that a ten-percentage-point increase raises wages by 4% and procurement prices by 2.8%, with no systematic changes in quantities or observed quality. Procurement prices therefore rise about 70% as much as estimated cell wages. This wage-scaled response conceals sharply different behavior across price-setting rules. Price estimates are 5.1% in bilateral agreements and 1.8% in sealed-bid auctions. In auctions, the same exposure increase raises bids by 1.2%, but the response weakens as the number of bidders rises; neither bidder participation nor the difference between the lowest and second-lowest bids changes systematically. In direct agreements, transmission rises with buyer dependence on suppliers and falls with supplier dependence on buyers. Procurement is also organized around persistent supplier relationships: first-time tender winners are about 35 percentage points more likely than eligible losing firms to win subsequently, without detectable expansion along the other procurement margins I observe. Together, the results reveal a procurement-design trade-off: the flexibility and information exchange that can make bilateral negotiation valuable ex ante may also allow later supplier cost increases to pass more strongly into the prices the government pays ex post

Temporary wage subsidies can facilitate access to formal jobs in settings with high informality, where formal hiring is costly and workers often lack a verifiable employment history that allows prospective employers to assess their skills. Their effects may persist when they enable workers to gain experience in the formal sector, develop relevant skills, and establish an employment history that future employers can verify. We examine this possibility through Bolivia’s Program to Support Employment II, which combined a three-month wage subsidy with supervised workplace training and job matching. Using monthly work histories and staggered difference-in-differences, we estimate an 8.4 percentage point increase in formal employment. The central finding is persistent formalization: gains last through the first year after entry and, among beneficiaries with a recorded entry activity, extend beyond that activity. These gains are accompanied by a shift from self-employment to formal employment, higher earnings, and changes in the sectoral composition of employment. Women, who initially have less access to formal jobs, experience larger proportional gains. The findings suggest that temporary wage subsidies can support lasting formalization when lower initial hiring costs are combined with tools that expand workers’ subsequent employment opportunities: job matching, workplace training, and formal work experience that allows future employers to verify their employment history and better assess their skills