Distortion by Audit: Evidence from Public Procurement

Maria Paula Gerardino, Stephan Litschig and Dina Pomeranz

American Economic Journal: Applied Economics, 2024, vol. 16, issue 4, 71-108

Abstract: Public sector audits are key to state capacity. However, 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 small, local, and incumbent 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. These findings show that standard audit protocols can mechanically discourage the use of more regulated, complex, and transparent procedures involving more auditable steps.

JEL-codes: H57 H83 O17 (search for similar items in EconPapers)
Date: 2024
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Citations: View citations in EconPapers (1)

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DOI: 10.1257/app.20220512

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