Working Paper: CEPR ID: DP12529
Authors: Maria Paula Gerardino; Stephan Litschig; Dina D. Pomeranz
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 competitive auctions for public procurement, reduced supplier competition, and increased the likelihood of incumbent, small, and local firms winning contracts. We also find suggestive evidence of a price increase. 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. These findings show that standard audit protocols can mechanically discourage the use of more regulated, complex and transparent procedures that involve more auditable steps.
Keywords: Public Procurement; Audits; Competitive Auctions; Direct Contracting
JEL Codes: No JEL codes provided
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| audits (M42) | shift away from competitive auctions (D44) |
| audits (M42) | increase in direct contracting (L33) |
| shift away from competitive auctions (D44) | reduction in supplier competition (L14) |
| shift to direct contracting (L33) | price increases (E30) |