Skip to main content

Effects of federal socioeconomic contracting preferences

Small Business Economics volume 49, pages 763–783 (2017)Cite this article

Abstract

The 8(a) business development program supports small disadvantaged U.S. federal contractors through benefits such as set-aside and sole-source contracts, management and technical assistance, and mentor-protégé relationships with established firms. This study examines the effectiveness of the 8(a) program at producing positive firm-level outcomes by comparing 8(a) firms with those participating in other preferential contracting programs with different benefits. The average 8(a) program participant performs well relative to baseline firms that do not receive contracting preferences; however, these effects are driven directly by funding and not by broader stimulation of sound business practices as intended by program designers. Program participants perform similarly to service-disabled veteran-owned businesses, which benefit from comparable contract preferences but none of the mentorship, administrative support and management assistance offered to 8(a) firms. While growing at similar rates, 8(a) firms are substantially more likely to go out of business than firms in this comparison group.

This is a preview of subscription content, access via your institution.

Access options

Buy single article

Instant access to the full article PDF.

USD 39.95

Price excludes VAT (USA)
Tax calculation will be finalised during checkout.

Fig. 1
Fig. 2
Fig. 3
Fig. 4
Fig. 5

References

  • Abadie A., & Imbens, G. (2012). Matching on the estimated propensity score. NBER Working Paper, 15301. doi: 10.3386/w15301.

  • Acs, Z., Astebro, T., Audretsch, D., & Robinson, D. T. (2016). Public policy to promote entrepreneurship: a call to arms. Small Business Economics, 47, 35–51. doi:10.1007/s11187-016-9712-2.

    Article  Google Scholar 

  • Anglund, S. M. (2000). Small business policy and the American creed. Westport: Praeger.

    Google Scholar 

  • Ashenfelter, O., & Heckman, J. (1976). Measuring the effect of an antidiscrimination program. In Ashenfeter & Blum (Eds.), Evaluating the labor-market effects of social programs (pp. 46–89). Princeton: Princeton University Press.

    Google Scholar 

  • Astebro, T. (2017). The private financial gains to entrepreneurship: is it a good use of public money to encourage individuals to become entrepreneurs? Small Business Economics, 48, 323–329. doi:10.1007/s11187-016-9777-y.

    Article  Google Scholar 

  • Audretsch, D. B., & Feldman, M. P. (1996). R&D spillovers and the geography of innovation and production. The American Economic Review, 86(3), 630–640 http://www.jstor.org/stable/2118216.

    Google Scholar 

  • Bates, T. (1985). Impact of preferential procurement policies on minority-owned businesses. The Review of Black Political Economy, 14(1), 51–65. doi:10.1007/BF02902609.

    Article  Google Scholar 

  • Bates, T. 2004. “Minority business development programs: Failure by design.” in Race, poverty, and domestic policy, by C.M. Henry. New Haven: Yale University Press.

  • Bates, T. (2009). Utilizing affirmative action in public sector procurement as a local economic development strategy. Economic Development Quarterly, 23(3), 180–192. doi:10.1177/0891242409333549.

    Article  Google Scholar 

  • Bates, T. (2015). Contested terrain: the role of preferential policies in opening government and corporate procurement markets to Black-owned businesses. Du Bois Review – Social Science Research on Race, 12(1), 137–159. doi:10.1017/S1742058X14000289.

    Article  Google Scholar 

  • Bates, T., & Williams, D. (1995). Preferential procurement programs and minority-owned businesses. Journal of Urban Affairs, 17(1), 1–17. doi:10.1111/j.1467-9906.1995.tb00516.x.

    Article  Google Scholar 

  • Bates, T., & Williams, D. (1996). Do preferential procurement programs benefit minority business? The American Economic Review, 86(2), 294–297 http://www.jstor.org/stable/2118140.

    Google Scholar 

  • Becker, G. S. (1983). A theory of competition among pressure groups for political influence. The Quarterly Journal of Economics, 98(3), 371–400. doi:10.2307/1886017.

    Article  Google Scholar 

  • Black, D. (1983). Effectiveness of the mandatory minority business set-aside contracting goals: a regression analysis. Evaluation Review, 7(3), 321–336. doi:10.1177/0193841X8300700303.

    Article  Google Scholar 

  • Blanchard, L., Zhao, B., & Yinger, J. (2008). Do lenders discriminate against minority and woman entrepreneurs? Journal of Urban Economics, 63(2), 467–497. doi:10.1016/j.jue.2007.03.001.

    Article  Google Scholar 

  • Blanchflower, D. G., Levine, P. B., & Zimmerman, D. J. (2003). Discrimination in the small-business credit market. Review of Economics and Statistics, 85(4), 930–943. doi:10.3386/w6840.

    Article  Google Scholar 

  • Boston, T. D., & Boston, L. R. (2007). Secrets of gazelles: the differences between high-growth and low-growth businesses owned by African American entrepreneurs. Annals of the American Academy of Political and Social Science, 613, 108–130. doi:10.1177/0002716207303581.

    Article  Google Scholar 

  • Butler, I., Galassi, G., & Ruffo, H. (2016). Public funding for startups in Argentina: an impact evaluation. Small Business Economics, 46, 295–309. doi:10.1007/s11187-015-9684-7.

    Article  Google Scholar 

  • Cavalluzzo, K. S., & Cavalluzzo, L. C. (1998). Market structure and discrimination: the case of small business. Journal of Money, Credit and Banking, 30(4), 771–792. doi:10.2307/2601128.

    Article  Google Scholar 

  • Cavalluzzo, K., & Wolken, J. (2005). Small business loan turndowns, personal wealth, and discrimination. Journal of Business, 78(6), 2153–2177. doi:10.1086/497045.

    Article  Google Scholar 

  • Chatterji, A. K., Chay, K. Y., & Fairlie, R. W. (2014). The impact of city contracting set-asides on Black self-employment and employment. Journal of Labor Economics, 32(3), 507–561. doi:10.3386/w18884.

    Article  Google Scholar 

  • Cox, A. G., & Moore, N. Y. (2013). Improving federal and Department of Defense use of service-disabled veteran-owned businesses. Washington, DC: RAND Corporation.

    Google Scholar 

  • Davila, R., Ha, I., & Myers Jr., S. (2012). Affirmative action retrenchment in public procurement and contracting. Applied Economics Letters, 19(18), 1857–1860. doi:10.1080/13504851.2012.654906.

    Article  Google Scholar 

  • Davis, S., Haltiwanger, J., & Schuh, S. (1996). Small business and job creation: dissecting the myth and reassessing the facts. Small Business Economics, 8(4), 297–315. doi:10.1007/BF00393278.

    Article  Google Scholar 

  • Decker, R., Haltiwanger, J., Jarmin, J., & Miranda, J. (2014). The role of entrepreneurship in US job creation and economic dynamism. The Journal of Economic Perspectives, 28(3), 3–24. doi:10.1257/jep.28.3.3.

    Article  Google Scholar 

  • Enchautegui, M., Fix, M., Loprest, P., von der Lippe, S., & Wissoker, D. (1996). Do minority-owned businesses get a fair share of government contracts? Washington, DC: Urban Institute.

    Google Scholar 

  • Fairlie, R. W., & Robb, A. M. (2007). Why are Black-owned businesses less successful than white-owned businesses? The role of families, inheritances, and business human capital. Journal of Labor Economics, 25(2), 289–323. doi:10.1086/510763.

    Article  Google Scholar 

  • Fairlie, R. W., & Robb, A. M. (2008). Race and entrepreneurial success: Black-, Asian-, and White-owned businesses in the United States. Cambridge: MIT Press.

    Google Scholar 

  • Figueroa-Armijos, M., & Johnson, T. G. (2016). Entrepreneurship policy and economic growth: solution or delusion? Evidence from a state initiative. Small Business Economics, 47, 1033–1047. doi:10.1007/s11187-016-9750-9.

    Article  Google Scholar 

  • Holzer, H., & Neumark, D. (2000). Assessing affirmative action. Journal of Economic Literature, 38(3), 483–568. doi:10.1257/jel.38.3.483.

    Article  Google Scholar 

  • Hopkins, G. L. (1975). Contracting with the disadvantaged, sec. 8(a) and the small business administration. Public Contract Law Journal, 7(2), 169–217 http://www.jstor.org/stable/25753856.

    Google Scholar 

  • Jaffe, A. B., Trajtenberg, M., & Henderson, R. (1993). Geographic localization of knowledge spillovers as evidenced by patent citations. The Quarterly Journal of Economics, 108(3), 577–598. doi:10.2307/2118401.

    Article  Google Scholar 

  • Kotlowski, D. (1998). Black power—Nixon style: the Nixon administration and minority business enterprise. The Business History Review, 72(3), 409–445. doi:10.2307/3116216.

    Article  Google Scholar 

  • Krugman, P. (1991). Increasing returns and economic geography. Journal of Political Economy, 99(3), 483–499. doi:10.1086/261763.

    Article  Google Scholar 

  • La Noue, G. (2008). Follow the money: who benefits from the Federal Aviation Administration’s DBE program? American Review of Public Administration, 38(4), 480–500. doi:10.1177/0275074007311309.

    Article  Google Scholar 

  • Leiter, S., & Leiter, W. (2002). Affirmative action in antidiscrimination law and policy: an overview and synthesis. Albany: State University of New York Press.

    Google Scholar 

  • Marion, J. (2009). How costly is affirmative action? Government contracting and California’s proposition 209. Review of Economics and Statistics, 91(3), 503–522. doi:10.1162/rest.91.3.503.

    Article  Google Scholar 

  • Marshall, A. (1920). Principles of economics. London: Macmillan.

    Google Scholar 

  • McCrudden, C. (2004). Using public procurement to achieve social outcomes. Natural Resources Forum, 28(4), 257–267. doi:10.1111/j.1477-8947.2004.00099.x.

    Article  Google Scholar 

  • McVay, B. L. (2009). Getting started in Federal Contracting: a guide through the Federal Procurement Maze. Burke: Panoptic Enterprises.

    Google Scholar 

  • Minola, T., Criaco, G., & Obschonka, M. (2016). Age, culture, and self-employment motivation. Small Business Economics, 46, 187–213. doi:10.1007/s11187-015-9685-6.

    Article  Google Scholar 

  • Myers Jr., S. L., & Chan, T. (1996). Who benefits from minority business set-asides? The case of New Jersey. Journal of Policy Analysis and Management, 15(2), 202–226. doi:10.1002/(SICI)1520-6688(199621)15:2<202::AID-PAM3>3.0.CO;2-N.

    Article  Google Scholar 

  • Myers, S.L., & Yuan, G. (2013) The deterrent effects of reverse discrimination claims on federal rule compliance: The case of public procurement and contracting. APPAM International Conference, Fudan University, May 25–27, 2013. http://www.umdcipe.org/conferences/GovernmentCollaborationShanghai/ShanghaiAgenda.html

  • Reeder, J.R., & Vergilio, J.A. (1984). Small business set-asides and corporate affiliation – A billion dollar business. Public Contract Law Journal, 15(2), 279–308. http://www.jstor.org/stable/25755477

  • Rice, M. F. (1992). Justifying state and local government set-aside programs through disparity studies in the post-Croson era. Public Administration Review, 52(5), 482–490. doi:10.2307/976808.

    Article  Google Scholar 

  • Rosa, P., Carter, S., & Hamilton, D. (1996). Gender as a determinant of small business performance: insights from a British study. Small Business Economics, 8(6), 463–478. doi:10.1007/BF00390031.

    Article  Google Scholar 

  • Sakallaris, A. G. (2007). Questioning the sacred cow: reexamining the justifications for small business set asides. Public Contract Law Journal, 36(4), 685–700 http://www.jstor.org/stable/25755431.

    Google Scholar 

  • Sirmons, D.B. (2004). Federal contracting with women-owned businesses: An analysis of existing challenges and potential opportunities. Public Contract Law Journal, 33(4), 725–779. http://www.jstor.org/stable/25755295

  • Stigler, G. J. (1971). The theory of economic regulation. The Bell Journal of Economics and Management Science, 2(1), 3–21. doi:10.2307/3003160.

    Article  Google Scholar 

  • Strupler, M.L.,& Wolter, S.C. (2016). Empirical evidence on the effectiveness of social public procurement policy: The case of the swiss apprenticeship training system. IZA Discussion Paper No. 9646. http://legacy.iza.org/en/webcontent/publications/papers/viewAbstract?dp_id=9646

  • Sweet, M. J. (2006). Minority business enterprise programmes in the United States of America: an empirical investigation. Journal of Law and Society, 33(1), 160–180. doi:10.1111/j.1467-6478.2006.00353.x.

    Article  Google Scholar 

Download references

Acknowledgements

Funding was provided by the Center for Study of Public Choice at George Mason University and the Cosmos Club Foundation. Thanks to Alex Tabarrok, Thomas Stratmann and John Earle of George Mason University.

Author information

Authors and Affiliations

  1. George Mason University, 4400 University Dr, Fairfax, VA, 22030, USA

    Grant H. Lewis

Authors
  1. Grant H. Lewis
    View author publications

    You can also search for this author in PubMed Google Scholar

Corresponding author

Correspondence to Grant H. Lewis.

Rights and permissions

Reprints and Permissions

About this article

Verify currency and authenticity via CrossMark

Cite this article

Lewis, G.H. Effects of federal socioeconomic contracting preferences. Small Bus Econ 49, 763–783 (2017). https://doi.org/10.1007/s11187-017-9860-z

Download citation

  • Accepted:

  • Published:

  • Issue Date:

  • DOI: https://doi.org/10.1007/s11187-017-9860-z

Keywords

  • Entrepreneurship
  • Firm sales
  • Firm size
  • National subsidies
  • Policy
  • Public economics
  • Public expenditure

JEL classification

  • H32
  • H57
  • L25
  • L53