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Corruption and Collusion in Procurement Tenders

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Author Info

  • Ariane Lambert-Mogiliansky

    (CERAS Ecole Nationale des Ponts Chaussee, CNRS URA 2036 and New Economic School)

  • Konstantin Sonin

    ()
    (New Economic School/CEFIR and CEPR)

Abstract

There is a mounting body of evidence that collusive agreements between bidders in large multiple-object procurement tenders are often supported by a corrupt administrator. In a first-price multiple-object auction, if the auctioneer has some legal discretion to allow bidders to readjust their offers prior to the official opening, he also has incentives to extract bribes from agents in exchange for abusing this discretion. In particular, corrupt agent’s incentives to receive bribes are closely linked with that of creating a ’bidding ring’ as the agent’s discretionary power gains value when firms collude. Thus, corruption generates focal equilibria where bidders fully refrain from competing with each other. Additional flexibility of the auction format such as the possibility to submit package bids, which is often considered to be efficiency-enhancing in theoretical literature, increases the risk of collusion in the presence of corruption. Such problems are more likely to arise in tenders, where participating firms are not too close competitors.

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Bibliographic Info

Paper provided by Center for Economic and Financial Research (CEFIR) in its series Working Papers with number w0036.

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Length: 31 pages
Date of creation: Apr 2003
Date of revision:
Handle: RePEc:cfr:cefirw:w0036

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Keywords: auctions; corruption; collusion;

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References

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  1. Babaioff, Moshe & Feldman, Michal & Nisan, Noam & Winter, Eyal, 2012. "Combinatorial agency," Journal of Economic Theory, Elsevier, vol. 147(3), pages 999-1034.
  2. John O. Ledyard & David Porter & Antonio Rangel, 1997. "Experiments Testing Multiobject Allocation Mechanisms," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 6(3), pages 639-675, 09.
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Citations

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Cited by:
  1. Ariane Lambert Mogiliansky & Grigory Kosenok, 2006. "Public Markets Tailored for the Cartel- Favoritism in Procurement Auctions," Working Papers w0074, Center for Economic and Financial Research (CEFIR).
  2. Balsevich, A. & Pivovarova, S. & Podkolzina, E., 2012. "The Role of Information Transparency in Public Procurement: the Example of Russian Regions," Journal of the New Economic Association, New Economic Association, vol. 15(3), pages 82-112.
  3. Sonin Konstantin, 2004. "Private interest in public tenders: no revenue, no efficiency and no social benefits," EERC Working Paper Series 00-111e, EERC Research Network, Russia and CIS.
  4. Arnold, Ulli & Neubauer, Joerg & Schoenherr, Tobias, 2012. "Explicating factors for companies’ inclination towards corruption in Operations and supply chain management: An exploratory study in Germany," International Journal of Production Economics, Elsevier, vol. 138(1), pages 136-147.
  5. repec:hal:wpaper:halshs-00590288 is not listed on IDEAS
  6. Tina Søreide, 2006. "Beaten by bribery: Why not blow the whistle?," CMI Working Papers WP 2006: 5, CMI (Chr. Michelsen Institute), Bergen, Norway.
  7. Leonardo Rezende, 2009. "Biased procurement auctions," Economic Theory, Springer, vol. 38(1), pages 169-185, January.
  8. Yasunori Okumura, 2011. "A dynamic analysis of collusive networks," Review of Economic Design, Springer, vol. 15(4), pages 317-336, December.
  9. Dietrich, Michael & McHardy, Jolian & Sharma, Abhijit, 2010. "Firm corruption in the presence of an auditor," MPRA Paper 24784, University Library of Munich, Germany.
  10. repec:hal:cesptp:hal-00512813 is not listed on IDEAS
  11. repec:hal:wpaper:hal-00512813 is not listed on IDEAS
  12. Ariane Lambert-Mogiliansky & Grigory Kosenok, 2009. "Fine-Tailored for the Cartel-Favoritism in Procurement," Review of Industrial Organization, Springer, vol. 35(1), pages 95-121, September.
  13. 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, vol. 17(2), pages 166-175, June.

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