Shades of grand corruption among allocative efficiency and institutional settings. The case of Italy

This paper examines the underexplored impact of the procedures in public contracts on market allocation efficiency that are at risk of corruption. We integrated the GMM-SYS estimator with analyses of a balanced panel database of all the provinces in Italy between the period 2013–2021. The use of a high level of spatial granularity in an under-researched context revealed two distinct scenarios. In competitive markets, a more entrepreneurial and less widespread form of corruption emerged which may enhance market efficiency (bottom-up pattern). Conversely, in a context with limited market competition and low institutional quality, corruption indicators may be less useful due to potential pre-bribery behavior (top-down pattern). Our study underscores the capacity of corrupt suppliers to exploit market opportunities and secure selection. We found that corruption risk practices within public contracts have the potential to improve market efficiency, thus rendering them appealing to corrupt suppliers due to their capacity to deliver economic advantages. This also applies to provinces with high-quality governance. Additionally, the paper highlights the limitations of indicators in alternative contexts. The paper has significant implications for policymakers in defining assignation criteria in high-quality contexts, but also offers insights into the effectiveness of grand corruption indicators for academics.