Procurement with manipulation

Using data from Italian public works, we study whether and which procuring administrations manipulate the value of contracts to avoid crossing regulatory thresholds that limit discretion, and how this impacts procurement outcomes. We use bunching estimators to document substantial manipulation just below these thresholds, mainly performed by administrations led by appointed, rather than elected officials. For the manipulating administrations, we estimate the effects of manipulation and find that it increases the use of discretionary procedures (restricted auctions), thereby reducing the number of bidders, works’ length, delays in delivery, and cost overruns, with mixed effects on rebates. Manipulation also increases repeated awards of contracts to less financially risky suppliers. We cross-validate our estimates using a reform that lowered the thresholds and find less use of discretion, and poorer procurement outcomes, notably increased delays. We find that administrations quickly adjust to the new rules, but heterogeneously based on how administrators are selected in office with appointed administrations reacting the most. A simple model where administrations may choose to manipulate the value of contracts guides the interpretation of our empirical results.