Do governments crowd out governments? Evidence from embassies at fiscal year-end (with Margaryta Klymak)
Currently at R&R at European Economic Review
Many governments operate budgets that expire at the end of the fiscal year and rush to spend large amounts at this time. The scale and breadth of this heightened spending raises the possibility of government departments crowding out each other at the year-end while competing with one another for limited suppliers. This may exacerbate the extent of year-end spending spikes. We investigate this possibility using expenditures of all over seas embassies and offices of the UK. We leverage a unique setting where embassies share the UK fiscal year for their budgeting but operate in countries with varying fiscal years and local economic conditions. Our results show that: (1) in every country embassies spend more at the UK fiscal year-end than in the average month; (2) the extent of this extra spending is greater in countries that have a fiscal year that overlaps with the UK; (3) embassies spend more at the end of the fiscal years of local firms.
JEL Codes: H50, H61.
Keywords: government spending, embassies, fiscal year-end, crowding out, United Kingdom.
Paying over the odds at the end of the fiscal year: Evidence from Ukraine (with Margaryta Klymak)
Currently at R&R at Journal of Econometrics
Governments are the largest buyers in most countries and they tend to operate budgets that expire at the end of the fiscal year. They also tend to spend disproportionately large amounts right at year-end. This use-it-or-lose-it spending pattern has been observed in a number of countries and is considered a problem due to possible waste. This could be the case if firms increase their prices to profit from a government’s greater demand at the end of the fiscal year. We investigate this previously unexplored possibility using a novel granular dataset of Ukrainian government procurement auctions over the period between 2017 and 2021. First, we document that the prices bid by firms are significantly higher in the last month of a fiscal year. Second, we employ a neural network technique to infer supplier costs from bidding behaviour. We estimate that suppliers charge around a 7.5% higher margin on less competitive tenders at the end of a fiscal year. Third, we demonstrate how results change depending on the type of the procured good, the length of the buyer-supplier relationship, and whether the procurement was expedited as a result of the Covid-19 pandemic. Our findings imply that substantial government funds could be saved if the extent of the year end spending could be moderated.
Keywords: procurement , fiscal year distortions , Ukraine , government spending
This has been circulated in the Department of Economics Discussion Paper Series, University of Oxford.
They were robbed! Scoring by the middlemost to attenuate biased judging in boxing (with Carl Singleton)
Boxing has a longstanding problem with biased judging, impacting both Olympic and professional bouts. "Robberies" - when boxers are widely seen as denied rightful victories - risk turning fans and athletes away from the sport. To address this, we propose a minimalist adjustment to how boxing is scored: the winner is decided by the majority of round-by-round victories according to the judging, rather than on the judges' overall bout scores. This approach, grounded in social choice theory, utilising majority rule and middlemost aggregation functions, offers a novel solution to attenuate biased judging. Our stylised model and simulations demonstrate the potential to significantly reduce the likelihood of a single judge swaying results, as well as making coordination harder among biased judges.
JEL Codes: D91, L83, Z20, Z28
Keywords: Judgement Bias, Contests, Sports Economics, Pugilism, Scoring Rules
In markets where firms sell similar goods to their competitors, firms may be able to free-ride off the costly price signalling of competitor firms by engaging in price comparative advertising. As the goods are similar consumers can reason that if one good is high quality (revealed for instance through price signalling) then so is the other. This paper models this phenomenon and finds that in equilibrium there will be firms price signalling as well as freeriding firms that signal through advertising. Surplus is strictly higher in markets where advertising firms are active relative to pure price signalling markets. In some cases advertising markets can be even more efficient than full information markets as advertisers surrender market power to avoid costly price signalling.
JEL Codes: D82, D83, M37
Keywords: Comparative advertising, Price Signalling
For a nontechnical explanation of this paper please press here