From elected to appointed: the economic consequences of central takeovers on public procurement

This paper investigates the impact of central takeovers of local jurisdictions on public procurement practices at the local level. Using a unique administrative dataset covering the universe of state contracts and a staggered Difference-in-Differences (DiD) design, we analyze the differences between elected and centrally appointed mayors in their practice of law and the resultant contract terms. Our findings reveal that trustee mayors, appointed by the central government, are more likely to misuse regulatory provisions, resulting in significant economic costs. Specifically, trustee mayors abuse the unforeseen event clause 24 percentage points more than elected mayors and reduce the use of competitive sealed-bid auctions by 32 percentage points. These results are robust to a variety of tests, including a Regression Discontinuity in Time (RDiT) approach. Such malpractice inflates contract prices by 23% and reduces value for money by 40%. We probe the underlying mechanisms and emphasize the diminished local accountability of appointed mayors. On the other hand, we do not find any evidence of better quality procurement through expanded discretion.