Distortion by Audit: Evidence from Public Procurement

Maria Paula Gerardino, Stephan Litschig and Dina Pomeranz

No 23978, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: Public sector audits are a key element of state capacity. However, we find that they can create unintended distortions. Regression discontinuity analysis from Chile shows that audits lowered the use of auctions for public procurement, reduced supplier competition, and increased the likelihood of incumbent, small, and local firms winning contracts. Looking inside the black box of the audit process reveals that relative to comparable direct contracts, auctions underwent more than twice as many checks and led to twice as many detected infractions. Procurement oﬀicers perceive the consequences of such detected infractions as severe. These findings show that standard audit protocols can mechanically discourage the use of more regulated, complex and transparent procedures that involve more auditable steps.

JEL-codes: D73 H57 O38 (search for similar items in EconPapers)
Date: 2017-10
New Economics Papers: this item is included in nep-acc, nep-cta and nep-lam
Note: DEV PE POL
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Citations: View citations in EconPapers (8)

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Working Paper: Distortion by Audit: Evidence from Public Procurement (2017)
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