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Using a rule in Brazil exempting small-value public purchases from
competitive bidding, this paper reveals an efficiency-quality trade-off
in public procurement. Discretionary purchases are 17% costlier than
auctions, but two-fifths of this premium reflects more expensive and
higher-quality brands, as measured by independent consumer product
testing scores and pharmaceutical quality violation records from health
authorities. While discretion introduces inefficiencies, it can also benefit
public service delivery by enabling the acquisition of more reliable
products. Consistent with this, hospitals using discretion to purchase
higher-quality medicines are associated with lower inpatient mortality.
These findings emphasize the need for regulations that balance efficiency
and quality concerns when limiting discretion.
