The Impact of Preference Programs in Public Procurement: Evidence from Veteran Set-Asides

• Authors: Rodrigo Carril.
• BSE Working Paper: 110888 | January 24
• Keywords: competition , Procurement , set-asides , veterans
• JEL codes: D44, H57, L14
• competition
• Procurement
• set-asides
• veterans

Veteran-owned businesses are given preferential treatment in the allocation of procurement contracts from the U.S. Department of Veterans Affairs -currently the largest civilian federal agency in terms of procurement spending. We exploit a 2016 Supreme Court ruling that significantly increased the scope of these set-asides, to study the impacts of preference programs on both the targeted businesses and procurement out- comes. The policy change increased the share of contracts awarded to the target population, service-disabled veteran-owned small businesses, and led to significant entry of new vendors, including those who had previously failed to win contracts. New entrants were also more likely to win future contracts, and the policy led to an increase in survival for targeted firms. We find no evidence of relevant spillovers to awards by other federal agencies, no decline in competition for awards, and no deterioration of contract execution performance by vendors. These findings suggest that VA set-asides have successfully improved outcomes for the target population without imposing significant costs on the government.