Proprietary Information Cost of Contracting with the Government

Abstract

We argue that contracting with the federal government involves significant proprietary information cost due to regulations requiring contractors to provide confidential information, which may then become available to outsiders via Freedom of Information Act (FOIA) requests. We provide evidence by showing that firms become more willing to bid for government contracts after a recent Supreme Court ruling on FOIA that improves information protection for contractors, and the effect is stronger when the contracts incur higher information cost for contractors. In addition, stock prices of firms with larger amounts of government contracts respond more positively to the ruling.