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Favoritism in public procurement auctions: model of endogenous entry

Author

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  • Maria OSTROVNAYA
  • Elena PODKOLZINA

Abstract

Governments of different countries try to lower the entry cost in public procurement in order to decrease public spending. The purpose of this paper is to examine how the entry cost influences favoritism and procurement prices in the corrupt environment. We adapt the model of selective entry and find that lower entry cost always reduces the contract price paid by the benevolent procurer, but at the same time may make favoritism more stable. Thus the entry cost does not affect the contract price paid by the corrupt procurer or increase it. We illustrate this result using case study on gasoline procurement in Russia where the entry cost of companies was decreased by e-procurement reform. This allows us to examine how changes in entry costs influence competition of companies and procurement prices in auctions.

Suggested Citation

  • Maria OSTROVNAYA & Elena PODKOLZINA, 2015. "Favoritism in public procurement auctions: model of endogenous entry," Working papers of the Department of Economics - University of Perugia (IT) 00015/2015, Università di Perugia, Dipartimento Economia.
    • Handle: RePEc:pia:papers:00015/2015
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    File URL: http://www.econ.unipg.it/files/generale/wp_2015/WP_15_2015_Ostrovnaya_Podkolzina.pdf
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    More about this item

    Keywords

    public procurement; endogenous entry; favoritism; e-auctions;
    All these keywords.

    JEL classification:

    • H57 - Public Economics - - National Government Expenditures and Related Policies - - - Procurement
    • D73 - Microeconomics - - Analysis of Collective Decision-Making - - - Bureaucracy; Administrative Processes in Public Organizations; Corruption

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