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Corruption and auctions

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  • Menezes, Flavio M.
  • Monteiro, Paulo Klinger

Abstract

We investigate the outcome of an auction where the auctioneer approaches one of the two existing bidders and offers an opportunity for him to match his opponent's bid in exchange for a bribe. In particular, we examine two types of corruption arrangements. In the first case, the auctioneer approaches the winner to offer the possibility of a reduction in his bid to match the loser's bid in exchange for a bribe. In the second arrangement, the auctioneer approaches the loser and offers him the possibility of matching the winner's bid in exchange for a bribe. While oral auctions are corruption free under the two arrangements, corruption affects both bidding behavior, efficiency and the seller's expected revenue in a first-price auction.

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Bibliographic Info

Article provided by Elsevier in its journal Journal of Mathematical Economics.

Volume (Year): 42 (2006)
Issue (Month): 1 (February)
Pages: 97-108

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Handle: RePEc:eee:mateco:v:42:y:2006:i:1:p:97-108

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

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References

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  1. Marco Celentani & Juan J. Ganuza, 2000. "Corruption and competition in procurement," Economics Working Papers, Department of Economics and Business, Universitat Pompeu Fabra 464, Department of Economics and Business, Universitat Pompeu Fabra, revised Mar 2001.
  2. Paul Klemperer, 2004. "Auctions: Theory and Practice," Economics Papers, Economics Group, Nuffield College, University of Oxford 2004-W09, Economics Group, Nuffield College, University of Oxford.
  3. Rothkopf, Michael H & Teisberg, Thomas J & Kahn, Edward P, 1990. "Why Are Vickrey Auctions Rare?," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 98(1), pages 94-109, February.
  4. Paul Klemperer, 2004. "Introduction to Auctions: Theory and Practice
    [Auctions: Theory and Practice]
    ," Introductory Chapters, Princeton University Press, Princeton University Press.
  5. Roberto Burguet & Yeon-Koo Che, 2004. "Competitive Procurement with Corruption," RAND Journal of Economics, The RAND Corporation, vol. 35(1), pages 50-68, Spring.
  6. Engelbrecht-Wiggans, Richard & Kahn, Charles M., 1991. "Protecting the winner : Second-price versus oral auctions," Economics Letters, Elsevier, Elsevier, vol. 35(3), pages 243-248, March.
  7. Arozamena, Leandro & Weinschelbaum, Federico, 2009. "The effect of corruption on bidding behavior in first-price auctions," European Economic Review, Elsevier, Elsevier, vol. 53(6), pages 645-657, August.
  8. McAfee, R Preston & McMillan, John, 1992. "Bidding Rings," American Economic Review, American Economic Association, American Economic Association, vol. 82(3), pages 579-99, June.
  9. Roberto Burguet & Martin Perry, 2002. "Bribery and Favoritism by Auctioneers in Sealed Bid Auctions," Departmental Working Papers, Rutgers University, Department of Economics 200205, Rutgers University, Department of Economics.
  10. O. Compte & A. Lambert-Mogiliansky & T. Verdier, 2005. "Corruption and Competition in Procurement Auctions," RAND Journal of Economics, The RAND Corporation, vol. 36(1), pages 1-15, Spring.
  11. Laffont, Jean-Jacques & Tirole, Jean, 1991. "Auction design and favoritism," International Journal of Industrial Organization, Elsevier, Elsevier, vol. 9(1), pages 9-42, March.
  12. Menezes, Flavio M., 1996. "Multiple-unit English auctions," European Journal of Political Economy, Elsevier, Elsevier, vol. 12(4), pages 671-684, December.
  13. Beck, Paul J. & Maher, Michael W., 1986. "A comparison of bribery and bidding in thin markets," Economics Letters, Elsevier, Elsevier, vol. 20(1), pages 1-5.
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Cited by:
  1. Lengwiler, Yvan & Wolfstetter, Elmar, 2010. "Auctions and corruption: An analysis of bid rigging by a corrupt auctioneer," Journal of Economic Dynamics and Control, Elsevier, Elsevier, vol. 34(10), pages 1872-1892, October.
  2. Wambach, Achim & Gretschko, Vitali, 2013. "Auctions vs. Negotiations: The Case of Favoritism," Annual Conference 2013 (Duesseldorf): Competition Policy and Regulation in a Global Economic Order, Verein für Socialpolitik / German Economic Association 79774, Verein für Socialpolitik / German Economic Association.
  3. Federico Weinschelbaum & Leandro Arozamena, 2005. "The Effect of Corruption on Bidding Behavior in First-Price Auctions," Working Papers, Universidad de San Andres, Departamento de Economia 82, Universidad de San Andres, Departamento de Economia, revised Aug 2005.
  4. José A. Rodrigues-Neto, 2009. "Sex, Money and Corruption," ANU Working Papers in Economics and Econometrics, Australian National University, College of Business and Economics, School of Economics 2009-500, Australian National University, College of Business and Economics, School of Economics.
  5. Hai Wang & Weidong Zhang & Jingjing Wang, 2007. "Auctioning the state owned enterprise in China: the trade-off between maximizing revenue and minimizing unemployment," Economic Change and Restructuring, Springer, Springer, vol. 40(3), pages 267-280, September.
  6. Rodrigues-Neto, José A., 2014. "On corruption, bribes and the exchange of favors," Economic Modelling, Elsevier, Elsevier, vol. 38(C), pages 152-162.
  7. Hongbin Cai & J. Vernon Henderson & Qinghua Zhang, 2013. "China's land market auctions: evidence of corruption?," RAND Journal of Economics, RAND Corporation, RAND Corporation, vol. 44(3), pages 488-521, 09.
  8. Þevket Alper Koç, 2008. "Effects Of Asymmetry On Ex Ante Corruption At Auctions," Bogazici Journal of Economics and Administrative Sciences, Bogazici University, Department of Economics, Bogazici University, Department of Economics, vol. 22(1+2), pages 17-33.
  9. Koc, Sevket Alper & Neilson, William S., 2008. "Interim bribery in auctions," Economics Letters, Elsevier, Elsevier, vol. 99(2), pages 238-241, May.
  10. 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, Free University of Berlin, Humboldt University of Berlin, University of Bonn, University of Mannheim, University 39, Free University of Berlin, Humboldt University of Berlin, University of Bonn, University of Mannheim, University of Munich.
  11. Tina Søreide, 2006. "Business corruption, uncertainty and risk aversion," CMI Working Papers, CMI (Chr. Michelsen Institute), Bergen, Norway WP 2006: 4, CMI (Chr. Michelsen Institute), Bergen, Norway.

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