Procurement Regulation and Buying Manipulation: An Analysis of Threshold Effects in a Middle-Income Country

Governments play a crucial role in regulating the behavior of both citizens and firms to ensure the provision of public goods and services. Public procurement can foster economic activity, but it also presents moral hazard problems. To combat this, governments impose buying rules, but their effects still need to be well-determined. In our paper, we analyze the impact of changes in procurement regulation on buying manipulation and the mechanisms behind it in a middle-income country between 2002-2021. We document a relevant manipulation in the simpler procedure to the detriment of the stricter ones. We quantify an excess of 3,357 purchases and the relative excess of mass of 0.04 by the effect of having a threshold. As the thresholds change, we find a higher response when the government restricts the rules with a smooth counterfactual. However, if we construct the counterfactual with the previous threshold, we find symmetric results.