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Corruption and competition in procurement

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Abstract

We consider a procurement problem in which the procurement agent is supposed to allocate the realization of a project according to a competitive mechanism that values bids in terms of the proposed price and quality. Potential bidders have private information about their production costs. Since the procurement agent is also in charge of verifying delivered quality, in exchange for a bribe, he can allow an arbitrary firm to be awarded the realization of the project and to produce a quality level lower than the announced. We compute the equilibrium level of corruption and we study the impact on corruption of the competitiveness of the environment, and in particular of: i) an increase in the number of potential suppliers of the good or service to be procured, ii) competitive (rather than collusive) behavior of procurement agents, and iii) an increase of competition in the market for procurement agents. We identify the effects that influence the equilibrium level of corruption and show that, contrary to conventional wisdom, corruption may well be increasing in competition.

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  • Marco Celentani & Juan J. Ganuza, 2000. "Corruption and competition in procurement," Economics Working Papers 464, Department of Economics and Business, Universitat Pompeu Fabra, revised Mar 2001.
    • Handle: RePEc:upf:upfgen:464
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    Keywords

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    JEL classification:

    • C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games
    • D73 - Microeconomics - - Analysis of Collective Decision-Making - - - Bureaucracy; Administrative Processes in Public Organizations; Corruption
    • 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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