Can Audits Backfire? Evidence from Public Procurement in Chile

74 Pages Posted: 30 Oct 2017

See all articles by Maria Paula Gerardino

Maria Paula Gerardino

Universitat Pompeu Fabra

Stephan Litschig

National Graduate Institute for Policy Studies (GRIPS)

Dina Pomeranz

Harvard University - Business School (HBS)

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Date Written: October 2017

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

Gerardino, Maria Paula and Litschig, Stephan and Pomeranz, Dina, Can Audits Backfire? Evidence from Public Procurement in Chile (October 2017). NBER Working Paper No. w23978, Available at SSRN: https://ssrn.com/abstract=3061659

Maria Paula Gerardino (Contact Author)

Universitat Pompeu Fabra

Ramon Trias Fargas, 25-27
Barcelona, E-08005
Spain

Stephan Litschig

National Graduate Institute for Policy Studies (GRIPS) ( email )

7-22-1 Roppongi, Minato-Ku
Tokyo 106-8677, Tokyo 106-8677
Japan

Dina Pomeranz

Harvard University - Business School (HBS) ( email )

Soldiers Field Road
Morgan 270C
Boston, MA 02163
United States

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