Nonlinear Incentive Schemes and Corruption in Public Procurement: Evidence from the Czech Republic

This article uses data on Czech public procurement contracts from 2005 - 2010 in order to uncover patterns suggestive of corrupt behavior of procuring officials. Using polynomial regressions and local linear density estimators, the article provides evidence that procurement officials manipulate anticipated values of procurements so that contracts can be awarded through less transparent procedures with restricted entry. Manipulations manifest through emergence of sharp discontinuities in the anticipated value distribution. Procurements excessively bunch below statutory thresholds, which determine officials’ scope of discretion, entry-restrictiveness and transparency of the contract-awarding process. The first appearance of discontinuities coincides almost exactly with thresholds being introduced into the procurement legislation. Manipulations occur only in procedures restricted by thresholds and are prevalent only among a narrow group of procuring bodies. The last finding is consistent with manipulations being driven by corruption of procurement officials. Manipulations concern 8.6% of all below-limit procurements.