Rules, Discretion, and Corruption in Procurement: Evidence from Italian Government Contracting

55 Pages Posted: 21 Dec 2020 Last revised: 31 Jul 2021

See all articles by Francesco Decarolis

Francesco Decarolis

Bocconi University - Department of Economics

Raymond J. Fisman

National Bureau of Economic Research (NBER); Boston University

Paolo Pinotti

Bocconi University - BAFFI Center on International Markets, Money, and Regulation

Silvia Vannutelli

Boston University

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Date Written: December 2020

Abstract

The benefits of bureaucratic discretion depend on the extent to which it is used for public benefit versus exploited for private gain. We study the relationship between discretion and corruption in Italian government procurement auctions, using a confidential database of firms and procurement officials investigated for corruption by Italian enforcement authorities. We show that discretionary procedure auctions (those awarded based on negotiated rather than open bidding) are associated with corruption only when conducted with fewer than the formally required number of bidders or employing discretionary criteria (“scoring rule” rather than first price). We further show that, while these “corruptible” discretionary auctions are chosen more often by officials who are themselves investigated for corruption, they are used less often in procurement administrations in which at least one official is investigated for corruption. These findings fit with a framework in which more discretion leads to greater efficiency as well as more opportunities for theft, and a central monitor manages this trade-off by limiting discretion for high-corruption procedures and locales. Additional results based on two standard tools for curbing corruption – turnover and subcontracting limits – corroborate this interpretation. Overall, our results imply that discretion may be under-utilized, given the high potential benefits as compared to the modest increment in corruption.

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Suggested Citation

Decarolis, Francesco and Fisman, Raymond and Pinotti, Paolo and Vannutelli, Silvia, Rules, Discretion, and Corruption in Procurement: Evidence from Italian Government Contracting (December 2020). NBER Working Paper No. w28209, Available at SSRN: https://ssrn.com/abstract=3753118

Francesco Decarolis (Contact Author)

Bocconi University - Department of Economics ( email )

Via Gobbi 5
Milan, 20136
Italy

Raymond Fisman

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Boston University ( email )

595 Commonwealth Avenue
Boston, MA 02215
United States

Paolo Pinotti

Bocconi University - BAFFI Center on International Markets, Money, and Regulation ( email )

Milano, 20136
Italy

Silvia Vannutelli

Boston University

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