The benefits of bureaucratic discretion depend on whether it is used to improve public welfare or exploited for private gain. We study the relationship between discretion and corruption in Italian government procurement auctions, using a confidential database of firms and procurement officials investigated for corruption by Italian enforcement authorities. We show that discretionary procedure auctions (those awarded on the basis of negotiated rather than open bidding) are associated with corruption only when conducted with fewer than the formally required number of bidders; we similarly find that discretionary criteria (``scoring rule'' rather than first price) auctions are won more often by firms investigated for corruption. We show that these ``corruptible'' discretionary auctions are chosen more often by officials who are themselves investigated for corruption, but less often in investigated procurement administrations (those in which enforcement authorities are investigating at least one procurement official). These findings fit 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 in high-corruption locales. Finally, we present two additional sets of analyses which suggest that monitors also use two standard tools -- turnover and subcontracting limits -- to further constrain auction officials in high corruption areas.

Francesco Decarolis, Raymond Fisman, Paolo Pinotti, and Silvia Vannutelli