American Economic Journal:
Applied Economics
ISSN 1945-7782 (Print) | ISSN 1945-7790 (Online)
Distortion by Audit: Evidence from Public Procurement
American Economic Journal: Applied Economics
vol. 16,
no. 4, October 2024
(pp. 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.Citation
Gerardino, Maria Paula, Stephan Litschig, and Dina Pomeranz. 2024. "Distortion by Audit: Evidence from Public Procurement." American Economic Journal: Applied Economics, 16 (4): 71–108. DOI: 10.1257/app.20220512Additional Materials
JEL Classification
- H57 National Government Expenditures and Related Policies: Procurement
- H83 Public Administration; Public Sector Accounting and Audits
- O17 Formal and Informal Sectors; Shadow Economy; Institutional Arrangements
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