Exponential and power laws in public procurement markets

TL;DR

This study analyzes a large public procurement database from the Czech Republic, revealing exponential and power law distributions in bidders and spending, and draws parallels with physics systems to suggest new policy insights.

Contribution

It uncovers the first empirical evidence of scaling laws in public procurement markets and introduces an analogy with physics to interpret these distributional properties.

Findings

Exponential law for the number of bidders

Power laws for revenues and spendings

Zipf's law for top 100 spending institutions

Abstract

For the first time ever, we analyze a unique public procurement database, which includes information about a number of bidders for a contract, a final price, an identification of a winner and an identification of a contracting authority for each of more than 40,000 public procurements in the Czech Republic between 2006 and 2011, focusing on the distributional properties of the variables of interest. We uncover several scaling laws -- the exponential law for the number of bidders, and the power laws for the total revenues and total spendings of the participating companies, which even follows the Zipf's law for the 100 most spending institutions. We propose an analogy between extensive and non-extensive systems in physics and the public procurement market situations. Through an entropy maximization, such the analogy yields some interesting results and policy implications with respect to the Maxwell-Boltzmann and Pareto distributions in the analyzed quantities.