A corruption risk indicator for public procurement

This article develops an original corruption risk indicator at the procurement level through a flexible and replicable methodology. A two-stage approach first estimates the potential waste score for each contract by employing a data envelopment analysis before isolating corruption from inefficiency by regressing waste scores on inefficiency determinants. This methodology is applied to Italian public works data for the period 2007 to 2017. Several validation tests testify to the robustness of the indicator, identifying actual corruption cases and demonstrating a significant correlation with a wide range of corruption indices available for Italy at the provincial and regional levels. Notwithstanding its usage as a risk-based assessment at the contract level, this indicator can also be used as a reputational instrument to assess contracting authorities and track their performance, conduct an evaluation of large funding programs, and support the enactment of risk-based audits.