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The effect of corruption on bidding behavior in first-price auctions

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  • Arozamena, Leandro
  • Weinschelbaum, Federico

Abstract

When the owner of an object sells it through an auction run by an agent of hers, corruption may appear. In a first-price auction, corruption can make honest bidders more or less aggressive, or their behavior can remain unchanged. We identify sufficient conditions for each of the three possibilities. We analyze the effects of corruption on efficiency, bidders' welfare and expected revenue. Our results apply as well to the situation--unrelated to corruption--where one of the bidders is granted a right of first refusal.

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Bibliographic Info

Article provided by Elsevier in its journal European Economic Review.

Volume (Year): 53 (2009)
Issue (Month): 6 (August)
Pages: 645-657

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Handle: RePEc:eee:eecrev:v:53:y:2009:i:6:p:645-657

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Web page: http://www.elsevier.com/locate/eer

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Keywords: Auctions Corruption Right-of-first-refusal;

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References

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  1. Lengwiler, Yvan & Wolfstetter, Elmar, 2000. "Auctions and corruption," SFB 373 Discussion Papers 2000,40, Humboldt University of Berlin, Interdisciplinary Research Project 373: Quantification and Simulation of Economic Processes.
  2. Jones, C. & Menezes, F., 1995. "Auctions and Corruption: How to Compensate the Auctioneer," Papers 291, Australian National University - Department of Economics.
  3. Naegelen, Florence & Mougeot, Michel, 1998. "Discriminatory public procurement policy and cost reduction incentives," Journal of Public Economics, Elsevier, vol. 67(3), pages 349-367, March.
  4. Burguet Roberto & Perry Martin K, 2007. "Bribery and Favoritism by Auctioneers in Sealed-Bid Auctions," The B.E. Journal of Theoretical Economics, De Gruyter, vol. 7(1), pages 1-27, June.
  5. McAfee, R. Preston & McMillan, John, 1989. "Government procurement and international trade," Journal of International Economics, Elsevier, vol. 26(3-4), pages 291-308, May.
  6. Federico Weinschelbaum & Leandro Arozamena, 2006. "A Note on the Suboptimality of Right-of-First-Refusal Clauses," Working Papers 92, Universidad de San Andres, Departamento de Economia, revised Jul 2006.
  7. repec:wop:humbsf:2000-72 is not listed on IDEAS
  8. Roberto Burguet & Martin K. Perry, 2003. "Preferred Suppliers and Vertical Integration in Auction Market," Working Papers 74, Barcelona Graduate School of Economics.
  9. Juan José Ganuza, 2003. "Competition and cost overruns in procurement," Economics Working Papers 772, Department of Economics and Business, Universitat Pompeu Fabra.
  10. Branco, Fernando, 1994. "Favoring domestic firms in procurement contracts," Journal of International Economics, Elsevier, vol. 37(1-2), pages 65-80, August.
  11. Elyakime, Bernard & Laffont, Jean-Jacques & Loisel, Patrice & Vuong, Quang, 1993. "First-Price Sealed-Bid Auctions with Secret Reservation Prices," IDEI Working Papers 27, Institut d'Économie Industrielle (IDEI), Toulouse.
  12. Ingraham Allan T, 2005. "A Test for Collusion between a Bidder and an Auctioneer in Sealed-Bid Auctions," The B.E. Journal of Economic Analysis & Policy, De Gruyter, vol. 4(1), pages 1-34, September.
  13. Laffont, Jean-Jacques & Tirole, Jean, 1991. "Auction design and favoritism," International Journal of Industrial Organization, Elsevier, vol. 9(1), pages 9-42, March.
  14. Lengwiler, Yvan & Wolfstetter, Elmar, 2010. "Auctions and corruption: An analysis of bid rigging by a corrupt auctioneer," Journal of Economic Dynamics and Control, Elsevier, vol. 34(10), pages 1872-1892, October.
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  16. Kenneth Hendricks & Robert Porter, 1989. "Collusion in Auctions," Discussion Papers 817, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
  17. Bikhchandani Sushil & Lippman Steven A. & Ryan Reade, 2005. "On the Right-of-First-Refusal," The B.E. Journal of Theoretical Economics, De Gruyter, vol. 5(1), pages 1-44, April.
  18. Bagnoli, M. & Bergstrom, T., 1989. "Log-Concave Probability And Its Applications," Papers 89-23, Michigan - Center for Research on Economic & Social Theory.
  19. Vagstad, Steinar, 1995. "Promoting fair competition in public procurement," Journal of Public Economics, Elsevier, vol. 58(2), pages 283-307, October.
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Citations

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Cited by:
  1. Arozamena, Leandro & Weinschelbaum, Federico, 2009. "Simultaneous vs. sequential price competition with incomplete information," Economics Letters, Elsevier, vol. 104(1), pages 23-26, July.
  2. Maria M. Wihardja, 2010. "Corruption In Public Procurement Auctions: Positive Equilibrium Analysis, Incentive Mechanism Design, And Empirical Study," Journal of Economic Development, Chung-Ang Unviersity, Department of Economics, vol. 35(1), pages 35-57, March.
  3. Roberto Burguet & Martin K. Perry, 2008. "Preferred Suppliers in Auction Markets," Working Papers 355, Barcelona Graduate School of Economics.
  4. Paulo Klinger Monteiro & Flavio Menezes, 2001. "Corruption and auctions," Microeconomics 0105002, EconWPA.
  5. Lengwiler, Yvan & Wolfstetter, Elmar G., 2005. "Bid Rigging. An Analysis of Corruption in Auctions," Discussion Paper Series of SFB/TR 15 Governance and the Efficiency of Economic Systems 39, Free University of Berlin, Humboldt University of Berlin, University of Bonn, University of Mannheim, University of Munich.
  6. Vitali Gretschko & Achim Wambach, 2012. "Auctions vs. Negotiations: The Case of Favoritism," CESifo Working Paper Series 4045, CESifo Group Munich.
  7. Pierre M. Picard & Ridwan D. Rusli, 2012. "State Owned Firms: Private Debt, Cost Revelation and Welfare," CREA Discussion Paper Series 12-10, Center for Research in Economic Analysis, University of Luxembourg.
  8. Roberto Cortes Conde, 2008. "Spanish America Colonial Patterns: The Rio de La Plata," Working Papers 96, Universidad de San Andres, Departamento de Economia, revised Mar 2008.
  9. Karine Brisset & François Cochard & François Maréchal, 2012. "The Value of a Right of First Refusal Clause in a Procurement First-Price Auction," Working Papers 2012-03, CRESE.
  10. Lengwiler, Yvan & Wolfstetter, Elmar, 2010. "Auctions and corruption: An analysis of bid rigging by a corrupt auctioneer," Journal of Economic Dynamics and Control, Elsevier, vol. 34(10), pages 1872-1892, October.
  11. Coviello, Decio & Gagliarducci, Stefano, 2010. "Building Political Collusion: Evidence from Procurement Auctions," IZA Discussion Papers 4939, Institute for the Study of Labor (IZA).

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