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Concealed Ownership of Contractors, Manipulation of Tenders and the Allocation of Public Procurement Contracts

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  • Jan Palguta

Abstract

This study provides evidence of a strong link between two channels facilitating rentextraction in public procurement: between concealing the ultimate ownership of contractors and manipulation of the anticipated value of tenders. Using data on more than 15 300 tenders awarded to joint-stock companies in the Czech Republic during 2005 - 2010, the study shows that tender value manipulation has been incentivized by the 2006 procurement reform, which established several discontinuities in the anticipated value of tenders. After the reform, manipulation increased much more for tenders awarded to contractors with anonymous owners as opposed to traceable owners. Contractors in manipulated tenders needed to underbid fewer firms in order to win procurements and their winning bids for comparable contracts were, on average, higher than before reform. The results imply disrupted optimality of contractor choice and reduced efficiency of procurement. The results are strongest for contracts on services and construction works, which traditionally conceal rentextraction more easily.

Suggested Citation

  • Jan Palguta, 2014. "Concealed Ownership of Contractors, Manipulation of Tenders and the Allocation of Public Procurement Contracts," CERGE-EI Working Papers wp501, The Center for Economic Research and Graduate Education - Economics Institute, Prague.
  • Handle: RePEc:cer:papers:wp501
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    File URL: http://www.cerge-ei.cz/pdf/wp/Wp501.pdf
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    References listed on IDEAS

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    Cited by:

    1. Bussolo, Maurizio & Commander, Simon & Poupakis, Stavros, 2018. "Political Connections and Firms: Network Dimensions," IZA Discussion Papers 11498, Institute for the Study of Labor (IZA).

    More about this item

    Keywords

    public procurement; contracts; corruption; rent-seeking; concealed ownership; forensic economics;

    JEL classification:

    • D72 - Microeconomics - - Analysis of Collective Decision-Making - - - Political Processes: Rent-seeking, Lobbying, Elections, Legislatures, and Voting Behavior
    • D73 - Microeconomics - - Analysis of Collective Decision-Making - - - Bureaucracy; Administrative Processes in Public Organizations; Corruption
    • H72 - Public Economics - - State and Local Government; Intergovernmental Relations - - - State and Local Budget and Expenditures

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