Can Audits Backfire? Evidence from Public Procurement in Chile

77 Pages Posted: 2 Jan 2018

See all articles by Maria Paula Gerardino

Maria Paula Gerardino

Universitat Pompeu Fabra

Stephan Litschig

National Graduate Institute for Policy Studies (GRIPS)

Dina Pomeranz

University of Zurich; Centre for Economic Policy Research (CEPR)

Multiple version iconThere are 2 versions of this paper

Date Written: December 2017

Abstract

Audits are generally intended to monitor compliance with existing rules. However, audits can also create unintended effects 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 (December 2017). CEPR Discussion Paper No. DP12529. Available at SSRN: https://ssrn.com/abstract=3095579

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

University of Zurich ( email )

Rämistrasse 71
Zürich, CH-8006
Switzerland

Centre for Economic Policy Research (CEPR) ( email )

London
United Kingdom

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