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The Effect of Corruption on Bidding Behavior in First-Price Auctions

  • Federico Weinschelbaum

    ()

    (Department of Economics, Universidad de San Andres)

  • Leandro Arozamena

    (Universidad Torcuato Di Tella)

When the owner of an object sells it through an auction run by an agent of hers, corruption may appear. In a first-price auction, corruption can make honest bidders more or less aggressive, or their behavior can remain unchanged. We identify sufficient conditions for each of the three possibilities. We analyze the effects of corruption on efficiency, bidders' welfare and expected revenue. Our results apply as well to the situation--unrelated to corruption--where one of the bidders is granted a right of first refusal.

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Paper provided by Universidad de San Andres, Departamento de Economia in its series Working Papers with number 82.

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Date of creation: Feb 2005
Date of revision: Aug 2005
Publication status: Published in European Economic Review, Vol. 53, Issue 6, August 2005, pp. 645-657
Handle: RePEc:sad:wpaper:82
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  1. 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.
  2. Roberto Burguet & Martin Perry, 2002. "Bribery and Favoritism by Auctioneers in Sealed Bid Auctions," Departmental Working Papers 200205, Rutgers University, Department of Economics.
  3. Bikhchandani Sushil & Lippman Steven A. & Ryan Reade, 2005. "On the Right-of-First-Refusal," The B.E. Journal of Theoretical Economics, De Gruyter, vol. 5(1), pages 1-44, April.
  4. Bagnoli, M. & Bergstrom, T., 1989. "Log-Concave Probability And Its Applications," Papers 89-23, Michigan - Center for Research on Economic & Social Theory.
  5. Laffont, Jean-Jacques & Tirole, Jean, 1991. "Auction design and favoritism," International Journal of Industrial Organization, Elsevier, vol. 9(1), pages 9-42, March.
  6. Lengwiler, Yvan & Wolfstetter, Elmar, 2010. "Auctions and corruption: An analysis of bid rigging by a corrupt auctioneer," Journal of Economic Dynamics and Control, Elsevier, vol. 34(10), pages 1872-1892, October.
  7. Elyakime, Bernard & Laffont, Jean-Jacques & Loisel, Patrice & Vuong, Quang, 1993. "First-Price Sealed-Bid Auctions with Secret Reservation Prices," IDEI Working Papers 27, Institut d'Économie Industrielle (IDEI), Toulouse.
  8. Juan José Ganuza, 2003. "Competition and cost overruns in procurement," Economics Working Papers 772, Department of Economics and Business, Universitat Pompeu Fabra.
  9. Lengwiler, Yvan & Wolfstetter, Elmar, 2000. "Auctions and corruption," SFB 373 Discussion Papers 2000,40, Humboldt University of Berlin, Interdisciplinary Research Project 373: Quantification and Simulation of Economic Processes.
  10. Naegelen, Florence & Mougeot, Michel, 1998. "Discriminatory public procurement policy and cost reduction incentives," Journal of Public Economics, Elsevier, vol. 67(3), pages 349-367, March.
  11. Paulo Klinger Monteiro & Flavio Menezes, 2001. "Corruption and auctions," Microeconomics 0105002, EconWPA.
  12. Federico Weinschelbaum & Leandro Arozamena, 2006. "A Note on the Suboptimality of Right-of-First-Refusal Clauses," Working Papers 92, Universidad de San Andres, Departamento de Economia, revised Jul 2006.
  13. Vagstad, Steinar, 1995. "Promoting fair competition in public procurement," Journal of Public Economics, Elsevier, vol. 58(2), pages 283-307, October.
  14. Branco, Fernando, 1994. "Favoring domestic firms in procurement contracts," Journal of International Economics, Elsevier, vol. 37(1-2), pages 65-80, August.
  15. Ingraham Allan T, 2005. "A Test for Collusion between a Bidder and an Auctioneer in Sealed-Bid Auctions," The B.E. Journal of Economic Analysis & Policy, De Gruyter, vol. 4(1), pages 1-34, September.
  16. repec:ebl:ecbull:v:4:y:2006:i:24:p:1-5 is not listed on IDEAS
  17. Kenneth Hendricks & Robert H. Porter, 1989. "Collusion in Auctions," Annals of Economics and Statistics, GENES, issue 15-16, pages 217-230.
  18. Roberto Burguet & Martin K. Perry, 2003. "Preferred Suppliers and Vertical Integration in Auction Market," Working Papers 74, Barcelona Graduate School of Economics.
  19. McAfee, R. Preston & McMillan, John, 1989. "Government procurement and international trade," Journal of International Economics, Elsevier, vol. 26(3-4), pages 291-308, May.
  20. Marshall, Robert C. & Marx, Leslie M., 2007. "Bidder collusion," Journal of Economic Theory, Elsevier, vol. 133(1), pages 374-402, March.
  21. Jones, C. & Menezes, F., 1995. "Auctions and Corruption: How to Compensate the Auctioneer," Papers 291, Australian National University - Department of Economics.
  22. Lee, Joon-Suk, 2008. "Favoritism in asymmetric procurement auctions," International Journal of Industrial Organization, Elsevier, vol. 26(6), pages 1407-1424, November.
  23. Roberto Burguet & Yeon-Koo Che, 2004. "Competitive Procurement with Corruption," RAND Journal of Economics, The RAND Corporation, vol. 35(1), pages 50-68, Spring.
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