Does Institutional Middleware Reduce Rent-Seeking in Smart Cities? Evidence from EU Digital Procurement

The rapid deployment of Urban Digital Twins (UDTs) and algorithmic decision-making systems promises enhanced efficiency in urban resource management. However, this digitalization often generates severe socio-technical frictions, primarily manifesting as algorithmic black boxes and vendor lock-in by major tech giants. Such technological exclusivity inherently restricts inclusive economic participation and exacerbates rent-seeking risks in public resource allocation.

This study introduces the concept of "Institutional Middleware"—a standardized regulatory and technical buffer comprising interoperability clauses (e.g., MIMs), open APIs, and algorithmic transparency requirements—and empirically tests its causal effect on mitigating rent-seeking behaviors in smart city procurement. Utilizing a comprehensive micro-dataset from the EU Tenders Electronic Daily (TED) database (2016–2025), we focus on high-complexity IT and software procurement contracts. Methodologically, we apply Natural Language Processing (NLP) to extract the intensity of institutional middleware clauses from unstructured contract notices. Subsequently, a high-dimensional two-way fixed effects model is employed to evaluate the impact of these clauses on the "single-bidder rate" (a globally recognized proxy for corruption and lock-in risks) and the market entry success of Small and Medium-sized Enterprises (SMEs).

Preliminary and expected results indicate that public digital contracts embedding strong institutional middleware significantly reduce single-bidder anomalies and increase SME participation. The findings suggest that interoperability and open standards serve not merely as technical specifications, but as crucial ex-ante anti-corruption mechanisms. By standardizing compliance and dismantling technological monopolies, institutional middleware effectively balances the efficiency–legitimacy trade-off, fostering a more inclusive and resilient urban digital economy during the twin transition.