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Effects of federal socioeconomic contracting preferences

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.

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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.

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Correspondence to Grant H. Lewis.

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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

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Keywords

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

JEL classification

  • H32
  • H57
  • L25
  • L53