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Rules Versus Discretion in Public Procurement

Rodrigo Carril

No 1232, Working Papers from Barcelona Graduate School of Economics

Abstract: I study the trade-off between rules and discretion in the context of US federal procurement. Below an arbitrary threshold amount, contracts can be awarded using procedures that are subject to significantly fewer rules and less oversight. Leveraging a change in the threshold value, I document three key empirical findings. First, there is substantial bunching of contracts at the threshold. Second, the added scrutiny introduced by rules distorts the award amount of some contracts, while discouraging other purchases altogether. Third, contracts subject to more scrutiny perform worse ex post. I propose and estimate a stylized model of public procurement that is consistent with these findings. I find that, at current levels, the benefits from waste prevention are modest relative to the size of the compliance costs introduced by regulation. I find that the optimal threshold is substantially higher than the current one, and that a proposed increase in the threshold will leave the government better off. The model highlights the key role of incentive misalignment in bureaucracies, and shows quantitatively how increased discretion can be optimal as misalignment is reduced.

Keywords: public procurement; Bureaucracy; discretion; Regulation; compliance (search for similar items in EconPapers)
JEL-codes: D73 H57 K23 (search for similar items in EconPapers)
Date: 2021-01
New Economics Papers: this item is included in nep-cta and nep-reg
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