PRELIMINARY AND INCOMPLETE

Affirmative action programs designed to increase the utilization of firms owned by minorities and women in public procurement are prevalent. In this paper I study the effectiveness of such programs in road construction, a large public procurement market that makes extensive use of affirmative action. I first examine variation in states ’ goals for the utilization of disadvantaged business enterprises (DBEs) over time. I find that affirmative action significantly increases contract awards to these firms, as each 10 percentage point increase in the DBE goal raises statewide utilization of DBEs as a fraction of contract dollars awarded by 4.3 percentage points. Affirmative action also varies across projects within a state. Using data from California state highway procurement, and an instrumental variables approach to obtain exogenous variation in a project’s DBE goal, I find that raising the affirmative action goal on a particular project by 10 percentage points increases the fraction of the contract subcontracted from DBEs by 5.4 percentage points. Finally, I document that highway construction firms in California, particularly those owned by Blacks and Asians, exhibit considerable racial segregation, and I exploit this fact to examine the effect of affirmative action on the success of minority-owned firms. Following the significant curtailment of affirmative action in California due to a direct statewide ballot initiative, the number of highway construction establishments located in predominantly Black and Asian neighborhoods fell relative to the rest of the state, even conditional on the number of non-construction establishments. This suggests that affirmative action policies may play a role in the net survival rates of minority-owned firms