Discretion and Supplier Selection in Public Procurement[Formal and Real Authority in Organizations]

Public procurement outcomes depend on the ability of the procuring agency to select well-performing suppliers. Should public administrations be granted more or less discretion in their decision-making? Using Italian data on municipal public works tendered in the period 2009–13, we study how a reform extending the scope of bureaucrat discretion affects supplier selection. We find that the share of contracts awarded to politically connected firms increases while the (ex ante) labor productivity of the winning firm decreases, thus suggesting a potential misallocation of public funds. The results are heterogeneous across procuring agencies: the effects on supplier selection are primarily concentrated among less qualified and less transparent administrations. (JEL D72, D73, H57, P16)