"When you can measure what you are speaking about, and express it in numbers, you know something about it; but when you cannot express it in numbers, your knowledge is of a meagre and unsatisfactory kind; it may be the beginning of knowledge, but you have scarcely, in your thoughts, advanced to the stage of science, whatever the matter may be."
Lord Kelvin

Public tenders of Hungarian hospitals on the standard dissection table of the economic analysis

January 24th 2018

István János Tóth – Miklós Hajdu: Public tenders of Hungarian hospitals on the standard dissection table of the economic analysis. Analysis of intensity of competition, corruption risks and price distortion of Hungarian public procurement. Budapest: CRCB, January, 2018.

Abstract

In the following short paper, we analyse the contracts of a Hungarian EU-funded programme (KEOP – 5.6.0/E/15) involved in an ongoing investigation of the Hungarian Competition Authority (HCA). The investigation was started for suspect of collusion and among the suspects involved are both Hungarian owned firms and subsidiaries of multinational companies such as Philips, Siemens, or GE. Our analysis takes into consideration the intensity of competition, the corruption risks and the price distortion; the indicators related to these domains are estimated by logit, OLS and ordered logit models. The KEOP program in question supported the purchase of medical devices (CT, MRI and X-ray machines) with about HUF 32.7 billion (105.5 million euros) in Hungarian hospitals. For our investigation, we used the database containing information about 200,000 public procurement contracts built by CRCB. The overwhelming majority of the contracts related to the programme were entered into 2015. During the analysis, we firstly estimated the impact of EU funding on the intensity of competition, the corruption risk and the price distortion of tenders in industrial goods procurement that was financed by the EU in 2015. Then, we investigated whether the intensity of competition, the corruption risk and the price distortion in the contracts of the KEOP programme (206 contracts) were significantly different from those of other EU-financed industrial tenders in 2015.

Our results reveal the perverse effect of EU funds on the Hungarian economy: EU funding weakens competition while increases the level of corruption risks and price distortion. Our results also support the accuracy of the decision to launch an official investigation by HCA: in the group of the contracts related to the KEOP – 5.6.0 / E / 15 programme, the intensity of competition was lower, and the level of corruption risks and the price distortion were significantly higher than in the group of the other EU-financed industrial tenders. These results confirm that empirical economic analysis is useful in auditing public procurement and in improving the targeting of official investigations. In addition, such results underline that EU-financed projects may, despite stringent EU regulation and accounting requirements, be subject to restriction on competition, high risk of corruption and price distortion.

 

Paper in Hungarian (pdf)

Figures (xlsx)

Database in Stata 13.1 format (dta)

Stata do file (do)