Procurement with Manipulation

Abstract

Using data from Italian public works, we study whether and which procuring administrationsmanipulate the value of contracts to avoid crossing regulatory thresholds that limit discretion,and how this impacts procurement outcomes. We use bunching estimators to document substantialmanipulation just below these thresholds, mainly performed by administrations led byappointed officials but not by elected ones. For the manipulating administrations, we estimatethe effects of manipulation and find that it increases the use of discretionary procedures (restrictedauctions), thereby reducing the number of bidders, works’ length, delays in delivery, andcost overruns, with mixed effects on rebates. Manipulation also increases repeated awards ofcontracts to less financially risky suppliers. We cross-validate our estimates using a reform thatlowered the thresholds and find less use of discretion, and higher procurement costs because ofincreased delays. A simple model where administrations may choose to manipulate the value ofcontracts provides guidance to our empirical analysis.

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