Rules, Discretion, and Corruption in Procurement

The benefits of bureaucratic discretion depend on extent to which it is used for public benefit versus exploited for private gain. We study the relationship between discretion and corruption in Italian government procurement auctions, using a confidential database of firms and procurement officials investigated for corruption by Italian enforcement authorities. Discretionary procedure auctions (those awarded on the basis of negotiated rather than open bidding) are associated with corruption when conducted with fewer than the formally required number of bidders; we similarly find that discretionary criteria ("scoringrule" rather than first price) auctions are won more often by firms investigated for corrup-tion. We show that these "corruptible" discretionary auctions are chosen more often by officials who are themselves investigated for corruption, but less often in procurement administrations in which at least one procurement official is investigated for corruption. These findings fit with a model in which more discretion leads to greater efficiency as well as more opportunities for theft, and a central monitor manages this tradeoff by limiting discretionin high-corruption locales. Consistent with such a model, we present two additional sets of analyses which suggest that monitors use two standard tools – turnover and subcontracting limits – to further constrain auction officials in high corruption areas. We conclude with a back-of-the-envelope calculation which suggests that discretion is under-utilized, given the high potential benefits, and the modest increment in corruption resulting from greater discretion, given in particular its limited use in locales where it is more apt to be exploited.