Wolfram, Catherine, Edward Miguel, Eric Hsu, Susanna B. Berkouwer. (2023) “Donor Contracting Conditions and Public Procurement: Causal Evidence from Kenyan Electrification”, National Bureau of Economic Research (NBER) Working Paper #30948.
There is limited causal evidence on the effects of different public procurement regulations on project quality and value-for-money for projects funded both by national governments and foreign aid donors. This paper uses both policy and experimental variation to study how two key contracting features—namely, contract bundling and monitoring—affect outcomes of a large economic development project. We leverage an unusual feature of Kenya’s nationwide electrification program: the quasi-random allocation of multilateral funding sources across nearby villages. African Development Bank (AfDB) projects used bundled contracts while the World Bank (WB) employed unbundled contracts together with strengthened inspections. To measure impacts, we collect on-the-ground engineering assessments, voltage and reliability data, household survey data on connection quality and usage, and analyze original contracts. The analysis suggests a stark trade-off: WB procedures delayed construction completion by 16 months on average relative to AfDB sites but improved construction quality by a sizeable 0.6 standard deviations. To disentangle the effects of contract bundling versus monitoring, we implement a randomized audits scheme that enhanced monitoring. The audits improve household connectivity, network size, and voltage at AfDB sites, but have no impact at WB sites, suggesting monitoring and unbundling contracts may be substitutes. Given the apparent trade-off, we investigate how net benefits depend on policymaker time preferences and infrastructure longevity (due to improved quality). Under plausible assumptions, WB processes could generate a net benefit ranging anywhere from +4% to -7% of total project value, indicating that neither procurement approach clearly dominates the other in this context.