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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. Kenneth Hendricks & Robert Porter, 1989. "Collusion in Auctions," Discussion Papers 817, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
  2. Mark Bagnoli & Ted Bergstrom, 2005. "Log-concave probability and its applications," Economic Theory, Springer, vol. 26(2), pages 445-469, 08.
  3. Laffont, Jean-Jacques & Tirole, Jean, 1991. "Auction design and favoritism," International Journal of Industrial Organization, Elsevier, vol. 9(1), pages 9-42, March.
  4. 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.
  5. 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.
  6. Paulo Klinger Monteiro & Flavio Menezes, 2001. "Corruption and auctions," Microeconomics 0105002, EconWPA.
  7. Branco, Fernando, 1994. "Favoring domestic firms in procurement contracts," Journal of International Economics, Elsevier, vol. 37(1-2), pages 65-80, August.
  8. Roberto Burguet & Yeon-Koo Che, 2004. "Competitive Procurement with Corruption," RAND Journal of Economics, The RAND Corporation, vol. 35(1), pages 50-68, Spring.
  9. 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.
  10. Lee, Joon-Suk, 2008. "Favoritism in asymmetric procurement auctions," International Journal of Industrial Organization, Elsevier, vol. 26(6), pages 1407-1424, November.
  11. 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.
  12. Jones, C. & Menezes, F., 1995. "Auctions and Corruption: How to Compensate the Auctioneer," Papers 291, Australian National University - Department of Economics.
  13. Burguet Roberto & Perry Martin K, 2007. "Bribery and Favoritism by Auctioneers in Sealed-Bid Auctions," The B.E. Journal of Theoretical Economics, De Gruyter, vol. 7(1), pages 1-27, June.
  14. Yvan Lengwiler & Elmar G. Wolfstetter, 2000. "Auctions and Corruption," CESifo Working Paper Series 401, CESifo Group Munich.
  15. Juan José Ganuza, 2003. "Competition and cost overruns in procurement," Economics Working Papers 772, Department of Economics and Business, Universitat Pompeu Fabra.
  16. Vagstad, Steinar, 1995. "Promoting fair competition in public procurement," Journal of Public Economics, Elsevier, vol. 58(2), pages 283-307, October.
  17. repec:ebl:ecbull:v:4:y:2006:i:24:p:1-5 is not listed on IDEAS
  18. Marshall, Robert C. & Marx, Leslie M., 2007. "Bidder collusion," Journal of Economic Theory, Elsevier, vol. 133(1), pages 374-402, March.
  19. Roberto Burguet & Martin K. Perry, 2003. "Preferred Suppliers and Vertical Integration in Auction Market," Working Papers 74, Barcelona Graduate School of Economics.
  20. McAfee, R. Preston & McMillan, John, 1989. "Government procurement and international trade," Journal of International Economics, Elsevier, vol. 26(3-4), pages 291-308, May.
  21. 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.
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