IDEAS home Printed from https://ideas.repec.org/p/ulr/wpaper/dt-07-26.html

Regulatory Thresholds and Procurement Costs : evidence from Induced Distortions

Author

Listed:
  • Eliana Sena

    (CIVICO Uruguay)

  • Rodrigo Ceni González

  • Federico Scalese

    (Universidad de la República (Uruguay). Facultad de Ciencias Económicas y de Administración. Instituto de Economía)

  • Romám Sugo

    (CIVICO Uruguay)

Abstract

Governments allocate substantial resources through public procurement, yet the design of procurement regulations involves a trade-off between transparency and the costs they impose on contracting authorities. Understanding how these rules affect purchasing behavior and procurement costs is essential for effective policy design. In this paper, we study how procurement thresholds shape purchasing decisions and their cost implications for contracting authorities in a middle-income country. Using a comprehensive administrative dataset covering all public procurement in Uruguay between 2002 and 2021, we exploit a regulatory threshold that determines the procurement procedure. This threshold creates discontinuities in procurement requirements, as more transparent procedures involve higher administrative burdens. We show that procurement thresholds induce significant behavioral distortions, with approximately 7.5\% of purchases clustering just below the cutoff. These responses are immediate and asymmetric to regulatory changes: relaxing thresholds reduces distortions, while tightening them increases their prevalence. Distortions are more pronounced at the end of the fiscal year, among more regulated buyers, and in environments with lower auditing intensity. Repeated relationships with suppliers also increase their likelihood. Importantly, these distortions have measurable cost implications. Affected purchases are associated with higher prices and a greater probability of overpricing. Finally, we estimate that the implicit cost of using a more stringent procedure is equivalent to approximately 1.5 times the procurement award at the threshold. These findings provides evidence on balancing transparency and cost.

Suggested Citation

  • Eliana Sena & Rodrigo Ceni González & Federico Scalese & Romám Sugo, 2026. "Regulatory Thresholds and Procurement Costs : evidence from Induced Distortions," Documentos de Trabajo (working papers) 26-07, Instituto de Economía - IECON.
  • Handle: RePEc:ulr:wpaper:dt-07-26
    as

    Download full text from publisher

    File URL: https://hdl.handle.net/20.500.12008/55452
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Bucciol, Alessandro & Camboni, Riccardo & Valbonesi, Paola, 2020. "Purchasing medical devices: The role of buyer competence and discretion," Journal of Health Economics, Elsevier, vol. 74(C).
    2. Jeffrey B. Liebman & Neale Mahoney, 2017. "Do Expiring Budgets Lead to Wasteful Year-End Spending? Evidence from Federal Procurement," American Economic Review, American Economic Association, vol. 107(11), pages 3510-3549, November.
    3. Oriana Bandiera & Michael Carlos Best & Adnan Qadir Khan & Andrea Prat, 2021. "The Allocation of Authority in Organizations: A Field Experiment with Bureaucrats," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 136(4), pages 2195-2242.
    4. Spagnolo, Giancarlo & Bosio, Erica & Bandiera, Oriana, 2021. "Introduction: Procurement in Focus: Rules, Discretion, and Emergencies," CEPR Press Book Chapters, in: Spagnolo, Giancarlo & Bosio, Erica & Bandiera, Oriana (ed.), Procurement in Focus: Rules, Discretion, and Emergencies, edition 1, volume 1, chapter 0, Centre for Economic Policy Research.
    5. Decio Coviello & Stefano Gagliarducci, 2017. "Tenure in Office and Public Procurement," American Economic Journal: Economic Policy, American Economic Association, vol. 9(3), pages 59-105, August.
    6. Maria Paula Gerardino & Stephan Litschig & Dina Pomeranz, 2024. "Distortion by Audit: Evidence from Public Procurement," American Economic Journal: Applied Economics, American Economic Association, vol. 16(4), pages 71-108, October.
    7. Stuart Baumann, 2019. "Putting It Off for Later: Procrastination and End of Fiscal Year Spending Spikes," Scandinavian Journal of Economics, Wiley Blackwell, vol. 121(2), pages 706-735, April.
    8. Audinga Baltrunaite & Cristina Giorgiantonio & Sauro Mocetti & Tommaso Orlando, 2021. "Discretion and Supplier Selection in Public Procurement," The Journal of Law, Economics, and Organization, Oxford University Press, vol. 37(1), pages 134-166.
    9. Oriana Bandiera & Andrea Prat & Tommaso Valletti, 2009. "Active and Passive Waste in Government Spending: Evidence from a Policy Experiment," American Economic Review, American Economic Association, vol. 99(4), pages 1278-1308, September.
    10. Ján Palguta & Filip Pertold, 2017. "Manipulation of Procurement Contracts: Evidence from the Introduction of Discretionary Thresholds," American Economic Journal: Economic Policy, American Economic Association, vol. 9(2), pages 293-315, May.
    11. Henrik J. Kleven & Mazhar Waseem, 2013. "Using Notches to Uncover Optimization Frictions and Structural Elasticities: Theory and Evidence from Pakistan," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 128(2), pages 669-723.
    12. Michael Carlos Best & Jonas Hjort & David Szakonyi, 2023. "Individuals and Organizations as Sources of State Effectiveness," American Economic Review, American Economic Association, vol. 113(8), pages 2121-2167, August.
    13. Francesco Decarolis & Giancarlo Spagnolo & Riccardo Pacini, 2016. "Past Performance and Procurement Outcomes," NBER Working Papers 22814, National Bureau of Economic Research, Inc.
    14. Coviello, Decio & Mariniello, Mario, 2014. "Publicity requirements in public procurement: Evidence from a regression discontinuity design," Journal of Public Economics, Elsevier, vol. 109(C), pages 76-100.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Coviello, Decio & Guglielmo, Andrea & Lotti, Clarissa & Spagnolo, Giancarlo, 2026. "Procurement with manipulation," Journal of Public Economics, Elsevier, vol. 256(C).
    2. Rodrigo Carril & Andres Gonzalez-Lira & Michael S. Walker, 2026. "Competition under Incomplete Contracts and the Design of Procurement Policies," American Economic Review, American Economic Association, vol. 116(2), pages 535-581, February.
    3. Rodrigo Carril, 2021. "Rules Versus Discretion in Public Procurement," Working Papers 1232, Barcelona School of Economics.
    4. Leonardo M. Giuffrida & Gabriele Rovigatti, 2022. "Supplier selection and contract enforcement: Evidence from performance bonding," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 31(4), pages 980-1019, November.
    5. Giuffrida, Leonardo M. & Raiteri, Emilio, 2021. "Buyers' workload and R&D procurement outcomes: Evidence from the US Air Force Research Lab," ZEW Discussion Papers 21-059, ZEW - Leibniz Centre for European Economic Research.
    6. Allende, Claudia & Atal, Juan Pablo & Carril, Rodrigo & Cuesta, José Ignacio & González-Lira, Andrés, 2024. "Drivers of public procurement prices: Evidence from pharmaceutical markets," International Journal of Industrial Organization, Elsevier, vol. 96(C).
    7. Tukiainen, Janne & Blesse, Sebastian & Bohne, Albrecht & Giuffrida, Leonardo M. & Jääskeläinen, Jan & Luukinen, Ari & Sieppi, Antti, 2024. "What are the priorities of bureaucrats? Evidence from conjoint experiments with procurement officials," Journal of Economic Behavior & Organization, Elsevier, vol. 227(C).
    8. Marly Tatiana Celis Galvez & Vitezslav Titl & Fredo Schotanus, 2025. "Discretion and political favoritism: Evidence from two reforms in public procurement," Southern Economic Journal, John Wiley & Sons, vol. 91(3), pages 915-968, January.
    9. J Gallego & M Prem & J. F Vargas, 2020. "Corruption in the times of pandemia," Documentos de Trabajo 18178, Universidad del Rosario.
    10. Hoekman, Bernard & Onur Taş, Bedri Kamil, 2024. "Discretion and public procurement outcomes in Europe," European Journal of Political Economy, Elsevier, vol. 82(C).
    11. Guo, Yuchen & Liang, Pinghan, 2025. "Budget rollover and year-end spending in China: evidence from public procurement contracts," China Economic Review, Elsevier, vol. 94(PA).
    12. Jääskeläinen, Jan & Tukiainen, Janne, 2019. "Anatomy of public procurement," Working Papers 118, VATT Institute for Economic Research.
    13. Decarolis, Francesco & de Rassenfosse, Gaétan & Giuffrida, Leonardo Maria & Iossa, Elisabetta & Mollisi, Vincenzo & Raiteri, Emilio & Spagnolo, Giancarlo, 2019. "Buyers' Role in Innovation Procurement," CEPR Discussion Papers 13777, Centre for Economic Policy Research.
    14. Erica Bosio & Simeon Djankov & Edward Glaeser & Andrei Shleifer, 2022. "Public Procurement in Law and Practice," American Economic Review, American Economic Association, vol. 112(4), pages 1091-1117, April.
    15. Cappelletti, Matilde & Giuffrida, Leonardo M., 2022. "Targeted bidders in government tenders," ZEW Discussion Papers 22-030, ZEW - Leibniz Centre for European Economic Research.
    16. A. Baltrunaite & T. Orlando & G. Rovigatti, 2024. "The Making of Public Works in Italy: Institutional Features and Regional Characteristics," Italian Economic Journal: A Continuation of Rivista Italiana degli Economisti and Giornale degli Economisti, Springer;Società Italiana degli Economisti (Italian Economic Association), vol. 10(3), pages 1195-1232, November.
    17. Francesco Decarolis & Leonardo M Giuffrida & Elisabetta Iossa & Vincenzo Mollisi & Giancarlo Spagnolo, 2020. "Bureaucratic Competence and Procurement Outcomes [“Politics and Economics in Weak and Strong States]," The Journal of Law, Economics, and Organization, Oxford University Press, vol. 36(3), pages 537-597.
    18. Martinez-Carrasco, José & ConceiçaÞo, Otavio & Dezolt, Ana Lúcia, 2023. "More Information, Lower Price? Access Market-based Reference Prices and Gains in Public Procurement Efficiency," IDB Publications (Working Papers) 12754, Inter-American Development Bank.
    19. Enza Maltese & Gabriele Rovigatti, 2026. "Administrative litigation and public procurement outcomes: evidence from Italy," Questioni di Economia e Finanza (Occasional Papers) 1065, Bank of Italy, Economic Research and International Relations Area.
    20. Frigo, Annalisa & Mocetti, Sauro, 2026. "Corrigendum to “The Effects of Digitalization on the Functioning of the Public Sector: Evidence from E-Procurement” [Journal of Economic Behavior & Organization, Volume 246, June 2026, 107587]," Journal of Economic Behavior & Organization, Elsevier, vol. 248(C).

    More about this item

    Keywords

    ;
    ;
    ;
    ;
    ;

    JEL classification:

    • H57 - Public Economics - - National Government Expenditures and Related Policies - - - Procurement
    • D73 - Microeconomics - - Analysis of Collective Decision-Making - - - Bureaucracy; Administrative Processes in Public Organizations; Corruption
    • D47 - Microeconomics - - Market Structure, Pricing, and Design - - - Market Design

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:ulr:wpaper:dt-07-26. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Lorenza Pérez (email available below). General contact details of provider: https://edirc.repec.org/data/ierauuy.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.