Justin Marion

Presenter: Justin Marion 

Paper: "The Ratchet Effect and Government Performance Targets: Small Business Goals in U.S. Federal Procurement" 

Abstract:  

This paper studies how the ratchet effect and manager accountability affects the attainment of non-binding performance targets within government. Each year, the U.S. federal government sets out to award 23 percent of contract dollars to small businesses, which it achieves by assigning each federal agency a goal for small business awards. I find evidence of ratcheting, in that an agency's small business utilization one year results in a higher goal the next. A model of within-year contract awards suggests that agencies respond by awarding conservatively early in the year to avoid unexpectedly high small business awards by year’s end, and I find evidence consistent with these within-year dynamics. Small business awards are accelerated at year's end when an agency is behind its goal, but only after a 2013 law change that sharpened manager incentives. Using an excess bunching design around thresholds allowing for sole-source contract awards, I demonstrate that this represents an intentional choice by agencies. Finally, I show that this acceleration is associated with a greater likelihood of adverse contract outcomes.