Corruption and Competition in Procurement Auctions

Olivier Compte (), Ariane Lambert-Mogiliansky and Thierry Verdier

RAND Journal of Economics, 2005, vol. 36, issue 1, 1-15

Abstract: We investigate the effect of corruption on competition in procurement. Our assumption is that the bureaucrat (i.e., the agent that administers the market), if corrupt, may provide an opportunity for bid readjusments in exchange for a bribe. As firms expect to be paying a bribe, a mechanical effect of corruption is to increase the contract price by an amount corresponding to the anticipated bribe. We show, however, that a key effect of corruption is to facilitate collusion in price between firms and thereby to generate a price increase that goes far beyond the bribe received by the bureaucrat. We discuss the effect of other forms of bureaucratic discretion in the procurement process and analyze conditions under which unilateral anticorruption controls restore price competition.

Keywords: Auctions -- Bureaucracy; Administrative Processes in Public Organizations; Corruption National Government Expenditures and Related Policies: Procurement Auction; Bid; Competition; Corruption; Procurement (search for similar items in EconPapers)
JEL-codes: D44 D73 H57 (search for similar items in EconPapers)
Date: 2005
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Citations: View citations in EconPapers (80)

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Persistent link: https://EconPapers.repec.org/RePEc:rje:randje:v:36:y:2005:1:p:1-15

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