Designing an efficient set-aside policy for advancing human rights goals through public procurement

Abstract

Set-aside policy is one of the mechanisms in public procurement adopted for implementing social goals of the State. Set-asides refer to the arrangement of keeping a fraction of the procurement volume, also termed the quantum of set-aside, reserved for vendors of a targeted group. The targeted group can either be a traditionally disadvantaged group that merits government support or, alternatively, a group that complies with certain desirable practices in its operations.

Government has at its disposal many design choices like the fraction of procurement quantity to be reserved for the targeted group etc, that it can adjust to maximise the desired social benefits that accrue. However, there is little insight into how these choices are made, and to what extent, they can impact the ultimate outcome. This paper seeks to address this gap by developing an economic model for set-aside policy and carrying out a game theoretic analysis to identify the economic incentives to vendors arising out of set aside benefits that can drive a change in their operations.

The insights from this economic model are then used to understand how government policy choices can impact these incentives and thereby the level of change that the policy can bring about. The paper focusses on the specific case where set-asides are proposed to be used for promoting human rights goals. This allows the researcher to suggest some practical measures that States can adopt for ensuring universal compliance of desired human rights standards by vendors using set-aside policy. This analysis also enables the researcher to quantify the connection between the State's “leverage” and its concomitant responsibility for promoting human rights in its business connections.