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Corruption and Competition in Procurement Auctions

Author

Listed:
  • O. Compte

    (CNRS-EHESS-ENPC-ENS)

  • A. Lambert-Mogiliansky

    (CNRS-EHESS-ENPC-ENS)

  • T. Verdier

    (CNRS-EHESS-ENPC-ENS)

Abstract

We investigate the effect of corruption on competition in procurement. Our assumption is that the bureaucrat (i.e., the agent that administers the market), if corrupt, may provide an opportunity for bid readjusments in exchange for a bribe. As firms expect to be paying a bribe, a mechanical effect of corruption is to increase the contract price by an amount corresponding to the anticipated bribe. We show, however, that a key effect of corruption is to facilitate collusion in price between firms and thereby to generate a price increase that goes far beyond the bribe received by the bureaucrat. We discuss the effect of other forms of bureaucratic discretion in the procurement process and analyze conditions under which unilateral anticorruption controls restore price competition.

Suggested Citation

  • O. Compte & A. Lambert-Mogiliansky & T. Verdier, 2005. "Corruption and Competition in Procurement Auctions," RAND Journal of Economics, The RAND Corporation, vol. 36(1), pages 1-15, Spring.
    • Handle: RePEc:rje:randje:v:36:y:2005:1:p:1-15
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    More about this item

    Keywords

    Auctions -- Bureaucracy; Administrative Processes in Public Organizations; Corruption National Government Expenditures and Related Policies: Procurement Auction; Bid; Competition; Corruption; Procurement;
    All these keywords.

    JEL classification:

    • D44 - Microeconomics - - Market Structure, Pricing, and Design - - - Auctions
    • D73 - Microeconomics - - Analysis of Collective Decision-Making - - - Bureaucracy; Administrative Processes in Public Organizations; Corruption
    • H57 - Public Economics - - National Government Expenditures and Related Policies - - - Procurement

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