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Quality manipulation and limit corruption in competitive procurement

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  • Wang, Hong

Abstract

We study competitive procurement administered by an agent who is supposed to evaluate bids on both price and quality by a scoring rule designed by the principal. Since the agent is in charge of verifying delivered quality, he has an opportunity to manipulate his evaluation of quality proposals in exchange for a bribe. In the presence of corruption, the optimal mechanism can be implemented by both first-score and second-score auctions in such a way that the scoring rule should deemphasize quality relative to price. We further identify factors that influence equilibrium corruption: (1) more efficient suppliers are willing to pay higher bribe; (2) the probability of corruption is decreasing in competition and increasing in the agent’s manipulation power; (3) compared to the first-score auction, the second-score auction leads to higher equilibrium bribe and thus is more vulnerable to corruption.

Suggested Citation

  • Wang, Hong, 2020. "Quality manipulation and limit corruption in competitive procurement," European Journal of Operational Research, Elsevier, vol. 283(3), pages 1124-1135.
    • Handle: RePEc:eee:ejores:v:283:y:2020:i:3:p:1124-1135
    DOI: 10.1016/j.ejor.2019.11.053
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    Cited by:

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    More about this item

    Keywords

    Project management; Multidimensional procurement; Corruption;
    All these keywords.

    JEL classification:

    • D44 - Microeconomics - - Market Structure, Pricing, and Design - - - Auctions
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • D86 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Economics of Contract Law

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