IDEAS home Printed from https://ideas.repec.org/p/upf/upfgen/1906.html

Corruption and renegotiation in procurement

Author

Listed:

Abstract

A sponsor –e.g. a government agency– uses a procurement auction to select a supplier who will be in charge of the execution of a contract. That contract is incomplete: it may be renegotiated once the auction's winner has been chosen. We examine a setting where one firm may bribe the agent in charge of monitoring contract execution so that the former is treated preferentially if renegotiation actually occurs. If a bribe is accepted, the corrupt firm will be more aggressive at the initial auction and thus win with a larger probability. We show that the equilibrium probability of corruption is larger when the initial contract is less complete, when the corrupt firm's cost is more likely to be similar to her rivals', and when it faces fewer competitors.

Suggested Citation

  • Leandro Arozamena & Juan José Ganuza & Federico Weinschelbaum, 2025. "Corruption and renegotiation in procurement," Economics Working Papers 1906, Department of Economics and Business, Universitat Pompeu Fabra.
    • Handle: RePEc:upf:upfgen:1906
    as

    Download full text from publisher

    File URL: https://econ-papers.upf.edu/papers/1906.pdf
    File Function: Whole Paper
    Download Restriction: no
    ---><---

    Other versions of this item:

    References listed on IDEAS

    as
    1. Decarolis, Francesco & Palumbo, Giuliana, 2015. "Renegotiation of public contracts: An empirical analysis," Economics Letters, Elsevier, vol. 132(C), pages 77-81.
    2. Bliss, Christopher & Di Tella, Rafael, 1997. "Does Competition Kill Corruption?," Journal of Political Economy, University of Chicago Press, vol. 105(5), pages 1001-1023, October.
    3. Juan‐José Ganuza, 2007. "Competition And Cost Overruns In Procurement," Journal of Industrial Economics, Wiley Blackwell, vol. 55(4), pages 633-660, December.
    4. Susan Rose-Ackerman, 1996. "Redesigning the State to Fight Corruption : Transparency, Competition and Privatization," World Bank Publications - Reports 11627, The World Bank Group.
    5. Roberto Burguet & Juan-José Ganuza & José G Montalvo, 2018. "The microeconomics of corruption," Chapters, in: Luis C. Corchón & Marco A. Marini (ed.), Handbook of Game Theory and Industrial Organization, Volume II, chapter 16, pages 420-450, Edward Elgar Publishing.
    6. Patrick Bajari & Stephanie Houghton & Steven Tadelis, 2014. "Bidding for Incomplete Contracts: An Empirical Analysis of Adaptation Costs," American Economic Review, American Economic Association, vol. 104(4), pages 1288-1319, April.
    7. McAfee, R. Preston & McMillan, John, 1989. "Government procurement and international trade," Journal of International Economics, Elsevier, vol. 26(3-4), pages 291-308, May.
    8. Lengwiler, Yvan & Wolfstetter, Elmar G., 2006. "Corruption in Procurement Auctions," Discussion Paper Series of SFB/TR 15 Governance and the Efficiency of Economic Systems 90, Free University of Berlin, Humboldt University of Berlin, University of Bonn, University of Mannheim, University of Munich.
    9. Erica Bosio & Simeon Djankov & Edward Glaeser & Andrei Shleifer, 2022. "Public Procurement in Law and Practice," American Economic Review, American Economic Association, vol. 112(4), pages 1091-1117, April.
    10. Nicolás Campos & Eduardo Engel & Ronald D. Fischer & Alexander Galetovic, 2021. "The Ways of Corruption in Infrastructure: Lessons from the Odebrecht Case," Journal of Economic Perspectives, American Economic Association, vol. 35(2), pages 171-190, Spring.
    11. Marco Celentani & Juan-José Ganuza, 2002. "Organized vs. Competitive Corruption," Annals of Operations Research, Springer, vol. 109(1), pages 293-315, January.
    12. Laffont, Jean-Jacques & Tirole, Jean, 1991. "Auction design and favoritism," International Journal of Industrial Organization, Elsevier, vol. 9(1), pages 9-42, March.
    13. Bajari, Patrick & Tadelis, Steven, 2001. "Incentives versus Transaction Costs: A Theory of Procurement Contracts," RAND Journal of Economics, The RAND Corporation, vol. 32(3), pages 387-407, Autumn.
    14. Arozamena, Leandro & Ganuza, Juan-José & Weinschelbaum, Federico, 2023. "Renegotiation, discrimination and favoritism in symmetric procurement auctions," European Economic Review, Elsevier, vol. 159(C).
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Arozamena, Leandro & Ganuza, Juan-José & Weinschelbaum, Federico, 2023. "Renegotiation, discrimination and favoritism in symmetric procurement auctions," European Economic Review, Elsevier, vol. 159(C).
    2. Leandro Arozamena & Federico Weinschelbaum & Juan-José Ganuza, 2021. "Renegotiation and Discrimination in Symmetric Procurement Auctions," Department of Economics Working Papers 2021_09, Universidad Torcuato Di Tella.
    3. Chiappinelli, Olga, 2020. "Political corruption in the execution of public contracts," Journal of Economic Behavior & Organization, Elsevier, vol. 179(C), pages 116-140.
    4. Engel, Eduardo & Fischer, Ronald D. & Galetovic, Alexander, 2024. "The company you keep: Renegotiations and adverse selection in transportation infrastructure," Economics of Transportation, Elsevier, vol. 38(C).
    5. Rodrigo Carril, 2021. "Rules Versus Discretion in Public Procurement," Working Papers 1232, Barcelona School of Economics.
    6. Celentani, Marco & Ganuza, Juan-Jose, 2002. "Corruption and competition in procurement," European Economic Review, Elsevier, vol. 46(7), pages 1273-1303, July.
    7. Marina Cavalieri & Rossana Cristaudo & Livio Ferrante & Calogero Guccio, 2019. "Does the Project Design Matter for the Performance of Infrastructure Execution? An Assessment for Italy," Italian Economic Journal: A Continuation of Rivista Italiana degli Economisti and Giornale degli Economisti, Springer;Società Italiana degli Economisti (Italian Economic Association), vol. 5(1), pages 39-77, March.
    8. Wenqin Zhong & Ligang Ren & Mengyi Wang, 2025. "Regulating unproductive contract adaptation: A payment deduction mechanism," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 46(4), pages 2237-2248, June.
    9. Gauthier, Bernard & Goyette, Jonathan & Kouamé, Wilfried A.K., 2021. "Why do firms pay bribes? Evidence on the demand and supply sides of corruption in developing countries," Journal of Economic Behavior & Organization, Elsevier, vol. 190(C), pages 463-479.
    10. Fabian Herweg & Marco A. Schwarz, 2016. "Optimal Cost Overruns: Procurement Auctions and Renegotiation," CESifo Working Paper Series 5838, CESifo.
    11. Massimo Finocchiaro Castro & Calogero Guccio & Giacomo Pignataro & Ilde Rizzo, 2018. "Is competition able to counteract the inefficiency of corruption? The case of Italian public works," Economia e Politica Industriale: Journal of Industrial and Business Economics, Springer;Associazione Amici di Economia e Politica Industriale, vol. 45(1), pages 55-84, March.
    12. Pierre-Henri Morand & François Marechal, 2023. "Achats publics responsables et achat local : enseignements des données ouvertes françaises," Post-Print hal-03842464, HAL.
    13. Ari Hyytinen & Sofia Lundberg & Otto Toivanen, 2018. "Design of public procurement auctions: evidence from cleaning contracts," RAND Journal of Economics, RAND Corporation, vol. 49(2), pages 398-426, June.
    14. Decarolis, Francesco & Mattera, Gianpiero & Menon, Carlo, 2020. "Delays at the Border: Court Efficiency and Delays in Public Contracts," CEPR Discussion Papers 14856, C.E.P.R. Discussion Papers.
    15. David Martimort & Flavio Menezes & Myrna Wooders & ELISABETTA IOSSA & DAVID MARTIMORT, 2015. "The Simple Microeconomics of Public-Private Partnerships," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 17(1), pages 4-48, February.
    16. Fazekas,Mihály & Blum,Jurgen Rene, 2021. "Improving Public Procurement Outcomes : Review of Tools and the State of the Evidence Base," Policy Research Working Paper Series 9690, The World Bank.
    17. Aaltio, Aapo & Buri, Riku & Jokelainen, Antto & Lundberg, Johan, 2025. "Complementary bidding and cartel detection: Evidence from Nordic asphalt markets," International Journal of Industrial Organization, Elsevier, vol. 98(C).
    18. Martimort, David & Arve, Malin, 2023. "Auctioning Long-Term Projects under Financial Constraints," TSE Working Papers 23-1469, Toulouse School of Economics (TSE), revised May 2024.
    19. Andres Gonzalez-Lira & Michael S. Walker & Rodrigo Carril, 2022. "Competition under Incomplete Contracts and the Design of Procurement Policies," Working Papers 1327, Barcelona School of Economics.
    20. Finocchiaro Castro, Massimo & Guccio, Calogero & Rizzo, Ilde, 2023. "How "one-size-fits-all" public works contract does it better? An assessment of infrastructure provision in Italy," EconStor Preprints 270729, ZBW - Leibniz Information Centre for Economics.

    More about this item

    Keywords

    ;
    ;
    ;
    ;
    ;

    JEL classification:

    • C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games
    • D44 - Microeconomics - - Market Structure, Pricing, and Design - - - Auctions
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:upf:upfgen:1906. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: the person in charge The email address of this maintainer does not seem to be valid anymore. Please ask the person in charge to update the entry or send us the correct address (email available below). General contact details of provider: http://www.upf.edu/en/web/econ/ .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.