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Can audits backfire? Evidence from public procurement in Chile


Gerardino, Maria Paula; Litschig, Stephan; Pomeranz, Dina (2017). Can audits backfire? Evidence from public procurement in Chile. NBER Working Papers 23978, National Bureau of Economic Research.

Abstract

Audits are generally intended to monitor compliance with existing rules. However, audits can also create unintended impacts and incentives through the specific protocol by which they are executed. In particular, audits can discourage the use of complex administrative procedures with more rules for auditors to check. This paper investigates the effects of procurement audits on public entities' choice of purchase procedures in Chile. While the national procurement legislation tries to promote the use of more transparent and competitive auctions rather than discretionary direct contracts for selection of suppliers, auctions are significantly more complex and the audit protocol mechanically leads to more scrutiny and a higher probability of further investigation for auctions than for direct contracts. Using a regression discontinuity design based on a scoring rule of the National Comptroller Agency, we find that audits lead to a decrease in the use of auctions and a corresponding increase in the use of direct contracts. In order to further test the underlying mechanism, we develop a new approach to conduct subgroup analysis in regression discontinuity designs while holding other observables constant.

Abstract

Audits are generally intended to monitor compliance with existing rules. However, audits can also create unintended impacts and incentives through the specific protocol by which they are executed. In particular, audits can discourage the use of complex administrative procedures with more rules for auditors to check. This paper investigates the effects of procurement audits on public entities' choice of purchase procedures in Chile. While the national procurement legislation tries to promote the use of more transparent and competitive auctions rather than discretionary direct contracts for selection of suppliers, auctions are significantly more complex and the audit protocol mechanically leads to more scrutiny and a higher probability of further investigation for auctions than for direct contracts. Using a regression discontinuity design based on a scoring rule of the National Comptroller Agency, we find that audits lead to a decrease in the use of auctions and a corresponding increase in the use of direct contracts. In order to further test the underlying mechanism, we develop a new approach to conduct subgroup analysis in regression discontinuity designs while holding other observables constant.

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Additional indexing

Item Type:Working Paper
Communities & Collections:03 Faculty of Economics > Department of Economics
Dewey Decimal Classification:330 Economics
JEL Classification:D73, H57, O38
Language:English
Date:October 2017
Deposited On:09 Feb 2018 10:39
Last Modified:30 Jul 2018 06:53
Series Name:NBER Working Papers
Number of Pages:73
OA Status:Green
Free access at:Publisher DOI. An embargo period may apply.
Publisher DOI:https://doi.org/10.3386/w23978
Related URLs:http://www.nber.org/papers/w23978

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