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

65 Pages Posted: 30 Sep 2022 Last revised: 30 Apr 2024

See all articles by Dimas Fazio

Dimas Fazio

National University of Singapore (NUS) - Department of Finance

Date Written: September 8, 2022

Abstract

Exploiting a rule in Brazil that exempts public purchases below a certain threshold value from competitive bidding, I provide evidence of an efficiency-quality trade-off when government agencies have more discretion in awarding public contracts. Discretionary purchases are 16% costlier than regulated auctions. However, two-fifths of the price difference can be attributed to higher-quality products. Despite potential inefficiencies, discretion may improve public service provision by enabling the acquisition of premium products. I find that hospitals using discretion to purchase higher-quality medicines experience reduced mortality rates. These findings emphasize the need for regulations to 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
Singapore

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