Rules, Discretion, and Corruption in Procurement: Evidence from Italian Government Contracting

Abstract

The benefits of bureaucratic discretion depend on its use for public benefit versus private gain. Using data on Italian firms and procurement officials investigated for corruption, we show that discretionary auctions (awarded on the basis of negotiation rather than open bidding) are linked to corruption only when competition is restricted. Corrupt officials favor these negotiated auctions, though they are used less often in administrations where at least one official is under investigation. This suggests that discretion enhances efficiency but also enables theft, leading monitors to limit discretion in high-corruption settings. Overall, competition helps authorities to harness discretion’s benefits while limiting its abuse.