CORRUPT RESERVE PRICES

Sümeyra Atmaca, Elena Podkolzina and Koen Schoors

Working Papers of Faculty of Economics and Business Administration, Ghent University, Belgium from Ghent University, Faculty of Economics and Business Administration

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.

Keywords: public procurement; corruption; regulation (search for similar items in EconPapers)
JEL-codes: H57 H83 K42 (search for similar items in EconPapers)
Pages: 45 pages
Date: 2019-02
New Economics Papers: this item is included in nep-cis, nep-com, nep-des and nep-law
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:rug:rugwps:19/961

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