Bunching Below Thresholds to Manipulate Public Procurement

Abstract

I examine a manipulation scheme that public authorities can use to exercise more discretion in public procurement. I propose that regression discontinuity manipulation tests can be implemented to identify manipulative authorities. I investigate the European Union public procurement data set. I find that 10-13% of examined authorities have high probabilities of bunching estimated costs just below thresholds. Manipulative authorities have significantly lower probabilities of employing competitive procurement procedure. The bunching manipulation scheme significantly diminishes cost-effectiveness of public procurement. On average, prices of below threshold contracts are 18-28% higher when the authority has an elevated probability of bunching.

Keywords: Public Procurement; Manipulation; Competition; European Union

JEL Classification: C31, D44, H57