Firm performance, imperfect competition, and corruption risks in procurement: evidence from Swedish municipalities

Emanuel Wittberg () and Mihály Fazekas ()
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Emanuel Wittberg: Linköping University
Mihály Fazekas: Central European University

Public Choice, 2023, vol. 197, issue 1, No 8, 227-251

Abstract: Abstract Previous research has shown that corruption risks may distort market incentives in high-risk contexts. However, there is a dearth of evidence on the potential impact of corruption in settings characterized by low corruption and high-quality institutions. Against that background, this paper delves deeper into the alleged consequences of corruption by examining the link between corruption risks in public procurement and the profitability of firms in the Swedish construction industry. We introduce a novel measure of corruption risk based on the share of single bidder contracts that a firm has won. Validity analysis confirms that our measure is correlated with an alternative corruption measure and local tender winners. Our results reveal that firms that win many single bidder contracts have higher profitability than other firms in the sector: 10 percentage points higher single bidding rate firms have a 0.2–0.6-percentage-point higher sales margin. The findings underscore that public procurement corruption risks distort markets and economic incentives, and that this risk is present even in low-corruption contexts such as in Sweden.

Keywords: Public procurement; Corruption; Imperfect markets; Firm performance (search for similar items in EconPapers)
Date: 2023
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Citations: View citations in EconPapers (1)

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DOI: 10.1007/s11127-023-01102-8

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