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The impact of procurement procedures on rent-seeking of procurers and suppliers: The case of Russia

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Abstract

In 2004-2005 the Russian government started to implement the reform of public procurement. In order to decrease incentives to corruption and encourage competition, they established new procurement procedures. Meanwhile, according to the anecdotal evidence, since the decade of the reform, different types of rent-seeking behavior have been still widespread in Russian procurement. In this article we conduct a comparative analysis of the procurement procedures in Federal Law 44 depending on the risks of rent-seeking behavior of public procurers and suppliers. We consider restrictions of competition to be indicators of corruption risks, i.e. the procurers rent-seeking behavior, and collusive practices (including imitation of collusion) and adverse selection to be indicators of the bidders rent-seeking behavior. At first we describe Russian procurement procedures and then we employ the case-study in order to analyze in-depth risks of various forms of rent-seeking behavior. We find that the risks of procurers rent-seeking behavior are negatively connected to the risks of suppliers rent-seeking. Some procurement procedures have more corruption risks, while others provide ample opportunities for collusion practices or an adverse selection. Basing on these results, we make recommendations to the regulator and to the government. First, the stimulating effect of monitoring will be higher under fixed monitoring costs, if the regulator monitors more probable forms of rentseeking in each procurement procedure. Second, the social welfare will be highest, if the choice of procurement procedure is based not only on the products characteristics, but also on the market structure, including the risks of horizontal collusion.

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  • Maria Ostrovnaya, 2015. "The impact of procurement procedures on rent-seeking of procurers and suppliers: The case of Russia," Public administration issues, Higher School of Economics, issue 1, pages 69-91.
    • Handle: RePEc:nos:vgmu00:2015:i:1:p:69-91
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    1. Ashenfelter, Orley, 1989. "How Auctions Work for Wine and Art," Journal of Economic Perspectives, American Economic Association, vol. 3(3), pages 23-36, Summer.
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