Cycles of Nepot­ism: How elect­or­al in­cent­ives and polit­ic­al con­nec­tions un­der­mine pub­lic pro­cure­ment

Abstract: 
This article examines cycles of nepotism in public procurement. Using the universe of public procurement contracts from the Philippines (2004-2019) and a Regression Discontinuity design, we document that politically connected firms are disproportionately awarded difficult-to-monitor projects, such as flood control, while being less likely to secure highly scrutinized projects like schools and health facilities. These distortions intensify in the pre-election year, when the flood control effect rises to 388.7 million PHP--roughly 10 percent of a district’s average annual infrastructure budget. Audit evidence further indicates that connected firms exhibit significantly worse implementation quality, greater delays, and higher schedule slippage in the pre-election year, with these effects reversing after the election. We argue that the evidence is consistent with strategic incumbents who, as elections approach, face heightened demand for campaign finance alongside increased voter scrutiny. To reconcile these pressures, they allocate contracts toward politically connected firms in project categories whose quality is difficult to observe, allowing rent extraction while limiting electoral punishment.