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Rules, Discretion, and Corruption in Procurement: Evidence from Italian Government Contracting

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  • Decarolis, Francesco
  • Fisman, Raymond
  • Pinotti, Paolo
  • Vannutelli, Silvia

Abstract

The benefits of bureaucratic discretion depend on the extent to which it is used for public benefit versus exploited for private gain. We study the relationship between discretion and corruption in Italian government procurement auctions, using a confidential database of firms and procurement officials investigated for corruption by Italian enforcement authorities. Based on a regression discontinuity design around thresholds for discretion, we find that, overall, a large increase in the use of discretionary procedures in the 2000s led to a minimal increase in auctions won by investigated firms. By further investigating the attributes of ``corrupted'' auctions, we uncover two main factors that drive this ``non-result.'' First, discretionary procedure auctions are associated with corruption only when conducted with fewer than the formally required number of bidders or employing discretionary criteria (``scoring rule'' rather than first price), which comprise a small fraction of discretionary auctions overall. We further show that, while these ``corruptible'' discretionary auctions are chosen more often by officials who are themselves investigated for corruption, they are used less often in procurement administrations in which at least one official is investigated for corruption. These findings fit with a framework in which more discretion leads to greater efficiency as well as more opportunities for theft, and a central monitor manages this trade-off by limiting discretion for high-corruption procedures and locales. Additional results based on two standard tools for curbing corruption -- turnover and subcontracting limits -- corroborate this interpretation. Overall, our results imply that discretion is under-utilized, given the high potential benefits as compared to the modest increment in corruption.

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  • Decarolis, Francesco & Fisman, Raymond & Pinotti, Paolo & Vannutelli, Silvia, 2020. "Rules, Discretion, and Corruption in Procurement: Evidence from Italian Government Contracting," CEPR Discussion Papers 14794, C.E.P.R. Discussion Papers.
  • Handle: RePEc:cpr:ceprdp:14794
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    Cited by:

    1. Colonnelli, Emanuele & Lagaras, Spyridon & Ponticelli, Jacopo & Prem, Mounu & Tsoutsoura, Margarita, 2020. "Revealing Corruption: Firm and Worker Level Evidence from Brazil," SocArXiv asrz4, Center for Open Science.
    2. Rodrigo Carril, 2021. "Rules Versus Discretion in Public Procurement," Working Papers 1232, Barcelona Graduate School of Economics.
    3. Paolo Pinotti, 0. "The Credibility Revolution in the Empirical Analysis of Crime," Italian Economic Journal: A Continuation of Rivista Italiana degli Economisti and Giornale degli Economisti, Springer;Società Italiana degli Economisti (Italian Economic Association), vol. 0, pages 1-14.
    4. Clark, Robert & Coviello, Decio & de Leverano, Adriano, 2021. "Centralized procurement and delivery times: Evidence from a natural experiment in Italy," ZEW Discussion Papers 21-063, ZEW - Leibniz Centre for European Economic Research.
    5. Tukiainen, Janne & Blesse, Sebastian & Bohne, Albrecht & Giuffrida, Leonardo M. & Jääskeläinen, Jan & Luukinen, Ari & Sieppi, Antti, 2021. "What are the priorities of bureaucrats? Evidence from conjoint experiments with procurement officials," ZEW Discussion Papers 21-033, ZEW - Leibniz Centre for European Economic Research.
    6. Gallego, Jorge & Prem, Mounu & Vargas, Juan F., 2020. "Corruption in the Times of Pandemia," Working papers 43, Red Investigadores de Economía.
    7. Paolo Pinotti, 2020. "The Credibility Revolution in the Empirical Analysis of Crime," Italian Economic Journal: A Continuation of Rivista Italiana degli Economisti and Giornale degli Economisti, Springer;Società Italiana degli Economisti (Italian Economic Association), vol. 6(2), pages 207-220, July.

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    More about this item

    Keywords

    Bribes; bureaucracy; Competition; Corruption; Procurement;
    All these keywords.

    JEL classification:

    • D73 - Microeconomics - - Analysis of Collective Decision-Making - - - Bureaucracy; Administrative Processes in Public Organizations; Corruption
    • H57 - Public Economics - - National Government Expenditures and Related Policies - - - Procurement
    • K42 - Law and Economics - - Legal Procedure, the Legal System, and Illegal Behavior - - - Illegal Behavior and the Enforcement of Law

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