New CEPR eBook - Procurement in Focus: Rules, Discretions, and Emergencies
Covid-19 has served as a global case study for increased discretion in public procurement, with governments worldwide making rules more flexible to increase spending, reduce the damage, and save lives. A new CEPR–World Bank eBook examines the tension between rules and discretion in public procurement and the steps that can be taken to improve procurement outcomes and mitigate the risk of corruption, collusion, abuse, and incompetence during crises.
This CEPR book brings together leading economists from across a wide range of developed and developing countries, to focus on agency problems in public procurement and analyse the effectiveness of policies implemented in response. The central theme throughout the book is the fundamental tension between rules and discretion: rules limit an agent’s ability to pursue private interests at the expense of the taxpayers, but discretion allows them to use their knowledge of the context to react quickly to unforeseen changes.
On the benefits and risks of discretion, the research shows that discretion can be very beneficial, allowing the use of simpler, faster, and less regulated procedures. However, the risk of its abuse remains high, particularly during emergencies and with weak institutions. Discretion can also play an important role in the life of the contract, as renegotiations lead to more renewals, which are regarded as a proxy for successful performance. However, the positive effects are only visible for complex concession-type contracts, and not for more rigid shorter-term service-type contracts. The research also finds that the distinction between corrupt and lazy agents is important because policies designed to curtail corruption such as strict rules that require extensive documentation can backfire if the agent is lazy – or even just cautious – as deviating from the rules is punishable even when doing so would benefit the taxpayer.
The book examines whether incentives are different during emergencies and shows that the balance between rules and discretion is usually shifted towards discretion in times of crisis and emergency, when public procurement rules are often made more flexible to support governments’ efforts to increase spending, save lives and reduce the damage. However, emergency procurement can stimulate increases in corruption, collusion, and abuse. Two steps can be taken to mitigate these negative effects – prepare better for emergencies and increase monitoring against abuse.
Authors also stress the importance of complementary Institutions in determining whether discretion ends up being beneficial. Several chapters argue that the quality of surrounding institutions and the competence and professionalisation of bureaucrats is imperative in determining whether discretion ends up being beneficial. When complementary institutions are present and well-functioning, one can afford more discretion in the hands of public administrators.
You can also read a VoxEU column here.