Procurement with Manipulation

Abstract

Using data from Italian public works, we study whether and which procuring administrations manipulate the value of contracts to avoid crossing regulatory thresholds that limit discretion, and how this impacts procurement outcomes. We use bunching estimators to document substantial manipulation just below these thresholds, performed by administrations led by appointed officials but not by elected ones. We estimate the effects of manipulation and find that it increases the use of discretionary procedures (restricted auctions), thereby reducing the number of bidders, works’ length, delays in delivery, and cost overruns, with mixed effects on rebates. Manipulation also increases repeated awards of contracts to less financially risky suppliers. We cross-validate our estimates using a reform that lowered the thresholds and find less use of discretion, lower procurement costs and increased delays and costs overruns, especially for administrations with appointed officials. A simple model where administrations may choose to manipulate the value of contracts provides guidance to our empirical analysis.

Keywords: discretion, bunching, thresholds, electoral accountability, bureaucracy, government performance