When the purchasing officer looks the other way: on the waste effects of debauched local environment in public works execution

There is extensive evidence on waste effects of environmental corruption in public works procurement. However, corruption is not the only source of waste. In this paper, we adopt a wider perspective and look at the environmental institutional quality, identifying the channels through which it can lead to different types of waste in public works execution. We firstly provide some empirical evidence on public works contracts managed by a large sample of Italian municipalities, showing that performance measures of public works execution are associated with the quality of local institutional environment in which they are executed. Motivated by this evidence, we develop a model where weak institutions entail low accountability of purchasing officers, thus they have low incentives to pursue the mandated task of monitoring the execution of contracts, even if no bribery occurs. Then, we assume that endemic environmental corruption increases the return of managerial effort devoted to rent-seeking activities for getting cost overruns, leading the contractor to divert effort from the productive activity. Overall, our model predictions conform well with the empirical evidence on Italian public works execution.