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Corruption and Collusion in Procurement Tenders

Author

Listed:
  • Ariane Lambert-Mogiliansky

    (CERAS Ecole Nationale des Ponts Chaussee, CNRS URA 2036 and New Economic School)

  • Konstantin Sonin

    () (New Economic School/CEFIR and CEPR)

Abstract

There is a mounting body of evidence that collusive agreements between bidders in large multiple-object procurement tenders are often supported by a corrupt administrator. In a first-price multiple-object auction, if the auctioneer has some legal discretion to allow bidders to readjust their offers prior to the official opening, he also has incentives to extract bribes from agents in exchange for abusing this discretion. In particular, corrupt agent’s incentives to receive bribes are closely linked with that of creating a ’bidding ring’ as the agent’s discretionary power gains value when firms collude. Thus, corruption generates focal equilibria where bidders fully refrain from competing with each other. Additional flexibility of the auction format such as the possibility to submit package bids, which is often considered to be efficiency-enhancing in theoretical literature, increases the risk of collusion in the presence of corruption. Such problems are more likely to arise in tenders, where participating firms are not too close competitors.

Suggested Citation

  • Ariane Lambert-Mogiliansky & Konstantin Sonin, 2003. "Corruption and Collusion in Procurement Tenders," Working Papers w0036, Center for Economic and Financial Research (CEFIR).
  • Handle: RePEc:cfr:cefirw:w0036
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    References listed on IDEAS

    as
    1. Babaioff, Moshe & Feldman, Michal & Nisan, Noam & Winter, Eyal, 2012. "Combinatorial agency," Journal of Economic Theory, Elsevier, vol. 147(3), pages 999-1034.
    2. John O. Ledyard & David Porter & Antonio Rangel, 1997. "Experiments Testing Multiobject Allocation Mechanisms," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 6(3), pages 639-675, September.
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    Keywords

    auctions; corruption; collusion;

    JEL classification:

    • D44 - Microeconomics - - Market Structure, Pricing, and Design - - - Auctions
    • H57 - Public Economics - - National Government Expenditures and Related Policies - - - Procurement
    • K42 - Law and Economics - - Legal Procedure, the Legal System, and Illegal Behavior - - - Illegal Behavior and the Enforcement of Law

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