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Can Audits Backfire? Evidence from Public Procurement in Chile

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Listed:
  • Maria Paula Gerardino
  • Stephan Litschig
  • Dina Pomeranz

Abstract

Audits are generally intended to monitor compliance with existing rules. However, audits can also create unintended impacts and incentives through the specific protocol by which they are executed. In particular, audits can discourage the use of complex administrative procedures with more rules for auditors to check. This paper investigates the effects of procurement audits on public entities' choice of purchase procedures in Chile. While the national procurement legislation tries to promote the use of more transparent and competitive auctions rather than discretionary direct contracts for selection of suppliers, auctions are significantly more complex and the audit protocol mechanically leads to more scrutiny and a higher probability of further investigation for auctions than for direct contracts. Using a regression discontinuity design based on a scoring rule of the National Comptroller Agency, we find that audits lead to a decrease in the use of auctions and a corresponding increase in the use of direct contracts. In order to further test the underlying mechanism, we develop a new approach to conduct subgroup analysis in regression discontinuity designs while holding other observables constant.

Suggested Citation

  • Maria Paula Gerardino & Stephan Litschig & Dina Pomeranz, 2017. "Can Audits Backfire? Evidence from Public Procurement in Chile," NBER Working Papers 23978, National Bureau of Economic Research, Inc.
  • Handle: RePEc:nbr:nberwo:23978
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    References listed on IDEAS

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    1. Stephan Litschig & Yves Zamboni, 2011. "Audit risk and rent extraction: Evidence from a randomized evaluation in Brazil," Economics Working Papers 1270, Department of Economics and Business, Universitat Pompeu Fabra, revised Jun 2013.
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    Cited by:

    1. Pomeranz, Dina & Vila-Belda, José, 2019. "Taking State-Capacity Research to the Field: Insights from Collaborations with Tax Authorities," CEPR Discussion Papers 13688, C.E.P.R. Discussion Papers.

    More about this item

    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
    • O38 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Government Policy

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