Big Guys Eat Big Cakes: Firm Size and Contracting in Urban and Rural Areas

A great deal of attention has been devoted to the analysis of different levels of privatization in urban and rural areas. However, until now no empirical study has been conducted on what types of firms are present in different geographical environments. We find that large firms that operate on a national basis dominate the contracts in the most populated and urban municipalities, and these firms seem to have closer relationships with nation-wide political parties. On the contrary, small firms that operate at a local level usually have the contracts in the less populated and isolated municipalities. This market structure may be harmful for competition in both types of municipalities, damaging the likelihood of obtaining cost savings from privatization.