Diversity versus Equity in Government Contracting

Many governments aim to give disadvantaged firms an equal opportunity to compete for government contracts and will use diversity in awards as a measure of success. I show theoretically that, when ex ante identical disadvantaged firms differ in an identifiable but irrelevant characteristic, diversity in awards may not translate into equity in opportunity—as buyers may discriminate within the disadvantaged group. Subcontracting data on Disadvantaged Business Enterprises in New Mexico show that inequities can arise in practice