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Corruption and Competition in Procurement Auctions

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Author Info

  • O. Compte

    ()
    (CNRS-EHESS-ENPC-ENS)

  • A. Lambert-Mogiliansky

    ()
    (CNRS-EHESS-ENPC-ENS)

  • T. Verdier

    ()
    (CNRS-EHESS-ENPC-ENS)

Abstract

We investigate the effect of corruption on competition in procurement. Our assumption is that the bureaucrat (i.e., the agent that administers the market), if corrupt, may provide an opportunity for bid readjusments in exchange for a bribe. As firms expect to be paying a bribe, a mechanical effect of corruption is to increase the contract price by an amount corresponding to the anticipated bribe. We show, however, that a key effect of corruption is to facilitate collusion in price between firms and thereby to generate a price increase that goes far beyond the bribe received by the bureaucrat. We discuss the effect of other forms of bureaucratic discretion in the procurement process and analyze conditions under which unilateral anticorruption controls restore price competition.

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Bibliographic Info

Article provided by The RAND Corporation in its journal RAND Journal of Economics.

Volume (Year): 36 (2005)
Issue (Month): 1 (Spring)
Pages: 1-15

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Handle: RePEc:rje:randje:v:36:y:2005:1:p:1-15

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Related research

Keywords: Auctions -- Bureaucracy; Administrative Processes in Public Organizations; Corruption National Government Expenditures and Related Policies: Procurement Auction; Bid; Competition; Corruption; Procurement;

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Cited by:
  1. repec:hal:wpaper:halshs-00672963 is not listed on IDEAS
  2. repec:hal:wpaper:halshs-00590773 is not listed on IDEAS
  3. Coviello, Decio & Gagliarducci, Stefano, 2010. "Building Political Collusion: Evidence from Procurement Auctions," IZA Discussion Papers 4939, Institute for the Study of Labor (IZA).
  4. Hiroshi Ohashi, 2008. "Effects of Transparency in Procurement Practices on Government Expenditure: A Case Study of Municipal Public Works," CIRJE F-Series, CIRJE, Faculty of Economics, University of Tokyo CIRJE-F-548, CIRJE, Faculty of Economics, University of Tokyo.
  5. Paulo Klinger Monteiro & Flavio Menezes, 2001. "Corruption and auctions," Microeconomics, EconWPA 0105002, EconWPA.
  6. repec:hal:wpaper:halshs-00590288 is not listed on IDEAS
  7. repec:hal:wpaper:hal-00512813 is not listed on IDEAS
  8. repec:hal:wpaper:halshs-00590706 is not listed on IDEAS
  9. Frédéric Koessler & Ariane Lambert-Mogiliansky, 2012. "Optimal Extortion and Political Risk Insurance," PSE Working Papers, HAL halshs-00672963, HAL.
  10. Decio Coviello & Mario Mariniello, 2008. "Does Publicity Affect Competition? Evidence from Discontinuities in Public Procurement Auctions," CSEF Working Papers, Centre for Studies in Economics and Finance (CSEF), University of Naples, Italy 189, Centre for Studies in Economics and Finance (CSEF), University of Naples, Italy.
  11. Lamy, Laurent, 2009. "The Shill Bidding Effect versus the Linkage Principle," Journal of Economic Theory, Elsevier, Elsevier, vol. 144(1), pages 390-413, January.
  12. Kenny, Charles & Soreide, Tina, 2008. "Grand Corruption in Utilities," Policy Research Working Paper Series, The World Bank 4805, The World Bank.
  13. Ariane Lambert-Mogiliansky & Grigory Kosenok, 2006. "Public markets tailored for the cartel - Favoritism in procurement auctions -," PSE Working Papers, HAL halshs-00590288, HAL.
  14. Amaral, Miguel & Saussier, Stéphane & Yvrande-Billon, Anne, 2009. "Auction procedures and competition in public services: The case of urban public transport in France and London," Utilities Policy, Elsevier, Elsevier, vol. 17(2), pages 166-175, June.
  15. Desrieux, Claudine & Chong, Eshien & Saussier, Stéphane, 2013. "Putting all one's eggs in one basket: Relational contracts and the management of local public services," Journal of Economic Behavior & Organization, Elsevier, Elsevier, vol. 89(C), pages 167-186.
  16. 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.

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