Corruption in Procurement: New Facts from Italian Government Contracting

Abstract: We use a confidential database of firms and procurement officials identified by Italian enforcement authorities as corrupt to document the factors associated with the corruption of municipal government contracts. We present four main findings. First, two auction types are more likely to be won by criminal (corrupt) firms: auctions with discretionary criteria (``scoring rule'' rather than first price) and auctions with discretionary procedures showing evidence that these procedures have been abused (negotiated rather than open bidding, with fewer than the formally required number of bidders). Second, discretionary auctions (both criteria and procedure) are chosen more often by corrupt procurement officials, but less often in municipalities in which authorities have identified at least one corrupt procurement official. Third, procurement administrators handle a smaller fraction of auctions in corrupt municipalities. Finally, when an auction is won by a criminal firm, there is a much higher rate of subcontracting to other firms that are themselves corrupt, with much of this effect coming via ex post subcontracts that were undisclosed in the initial bid. We suggest that our findings are most easily reconciled 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 discretion and maintaining high turnover in high-corruption locales.