The Two Sides of Discretion: Assessing Efficiency and Quality in Government Purchases

70 Pages Posted: 30 Sep 2022 Last revised: 14 Mar 2025

See all articles by Dimas Fazio

Dimas Fazio

National University of Singapore (NUS) - Department of Finance

Date Written: September 8, 2022

Abstract

Using a rule in Brazil exempting small-value public purchases from competitive bidding, this paper reveals an efficiency-quality trade-off in public procurement. Discretionary purchases are 17% costlier than auctions, but two-fifths of this premium reflects more expensive and higher-quality brands, such as medicines with fewer batch suspensions and consumer goods with better quality scores. While discretion introduces inefficiencies, it improves public service delivery by enabling the acquisition of more reliable products. For instance, hospitals using discretion to purchase higher-quality medicines achieve lower mortality rates. These findings emphasize the need for regulations that balance efficiency and quality concerns when limiting discretion.

Keywords: public procurement, product quality, overpricing, auctions, bid waivers

JEL Classification: L15, H57, D73

Suggested Citation

Fazio, Dimas, The Two Sides of Discretion: Assessing Efficiency and Quality in Government Purchases (September 8, 2022). Available at SSRN: https://ssrn.com/abstract=4212969 or http://dx.doi.org/10.2139/ssrn.4212969

Dimas Fazio (Contact Author)

National University of Singapore (NUS) - Department of Finance ( email )

Mochtar Riady Building
15 Kent Ridge Drive
Singapore, 119245
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