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Corrupt Reserve Prices

Author

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  • Sümeyra Atmaca

    ()

  • Elena Podkolzina
  • Koen Schoors

    ()

Abstract

We develop a new methodology to identify corruption in public procure- ment auctions with reserve prices and apply it to Russian public procure- ment auctions of gasoline in 2011-2013. We identify corrupt procurer-seller pairs by exploiting the variation in reserve prices. Since auction reserve prices are set by the procurer before the auction, they should be indepen- dent from the identity of the winning seller. We estimate reserve prices as a function of the local market price, contract, procurer and time controls, and procurer-seller fixed effects. A procurer-seller pair is labeled as poten- tially corrupt if its pair fixed effect is significantly larger than the average procurer fixed effect. Despite their reserve price overpricing, corrupt sell- ers face less competition in auctions organized by procurers with whom they form a corrupt pair and have a higher probability of wining these auc- tions. Auctions won by corrupt pairs exhibit higher final contract prices, leading to considerable welfare losses. The detrimental effect of reserve price manipulation on final prices is mitigated by higher competition and fully offset by electronic auctions with sufficient competition.

Suggested Citation

  • Sümeyra Atmaca & Elena Podkolzina & Koen Schoors, 2019. "Corrupt Reserve Prices," Working Papers of Faculty of Economics and Business Administration, Ghent University, Belgium 19/961, Ghent University, Faculty of Economics and Business Administration.
  • Handle: RePEc:rug:rugwps:19/961
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    File URL: http://wps-feb.ugent.be/Papers/wp_19_961.pdf
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    References listed on IDEAS

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    More about this item

    Keywords

    public procurement; corruption; regulation;

    JEL classification:

    • H57 - Public Economics - - National Government Expenditures and Related Policies - - - Procurement
    • H83 - Public Economics - - Miscellaneous Issues - - - Public Administration
    • K42 - Law and Economics - - Legal Procedure, the Legal System, and Illegal Behavior - - - Illegal Behavior and the Enforcement of Law

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