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Corruption In Public Procurement Auctions: Positive Equilibrium Analysis, Incentive Mechanism Design, And Empirical Study

  • Maria M. Wihardja


    (Centre of Strategic and International Studies, University of Indonesia)

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    We study how poor quality of institution, such as corruption in public procurement auction, could hurt welfare. We show how competition effect could improve the cost-efficiency but not the quality of a public procurement auction with corruption. In fact, no incentive mechanism can be efficient in this auction if qualities are non-contractible. An empirical study suggests that increasing the number of bidders does increase the percentage cost efficiency albeit at a decreasing rate and decreases the percentage cost efficiency after it reaches a certain number of bidders.

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    Article provided by Chung-Ang Unviersity, Department of Economics in its journal Journal Of Economic Development.

    Volume (Year): 35 (2010)
    Issue (Month): 1 (March)
    Pages: 35-57

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    Handle: RePEc:jed:journl:v:35:y:2010:i:1:p:35-57
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    1. Miguel A. Costa-Gomes & Klaus G. Zauner, 2003. "Learning, non-equilibrium beliefs, and non-pecuniary payoffs in an experimental game," Economic Theory, Springer, vol. 22(2), pages 263-288, 09.
    2. Peter Eso & James Schummer, 2002. "Bribing and Signalling in Second Price Auctions," Discussion Papers 1357, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
    3. Yvan Lengwiler & Elmar G. Wolfstetter, 2005. "Bid Rigging – An Analysis of Corruption in Auctions," CESifo Working Paper Series 1488, CESifo Group Munich.
    4. Itzhak Gilboa & David Schmeidler, 1989. "Maxmin Expected Utility with Non-Unique Prior," Post-Print hal-00753237, HAL.
    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. Federico Weinschelbaum & Leandro Arozamena, 2004. "The Effect of Corruption on Bidding Behavior in First-Price Auctions," Econometric Society 2004 Latin American Meetings 180, Econometric Society.
    7. Celentani, Marco & Ganuza, Juan-Jose, 2002. "Corruption and competition in procurement," European Economic Review, Elsevier, vol. 46(7), pages 1273-1303, July.
    8. Athey, Susan, 2001. "Single Crossing Properties and the Existence of Pure Strategy Equilibria in Games of Incomplete Information," Econometrica, Econometric Society, vol. 69(4), pages 861-89, July.
    9. Grant, Simon & Chateauneuf, A. & Eichberger, J., 2002. "Choice under Uncertainty with the Best and Worst in Mind: Neo-additive Capacities," Working Papers 2002-10, Rice University, Department of Economics.
    10. Yeon-Koo Che, 1993. "Design Competition through Multidimensional Auctions," RAND Journal of Economics, The RAND Corporation, vol. 24(4), pages 668-680, Winter.
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