Cartels and Bribes

Roberto Burguet, Elisabetta Iossa and Giancarlo Spagnolo

No 16, GREEN Working Papers from GREEN, Centre for Research on Geography, Resources, Environment, Energy & Networks, Universita' Bocconi, Milano, Italy

Abstract: We study the relationship between collusion and corruption in a stylized model of repeated procurement where the cost of reporting corrupt bureaucrats gives rise to a free riding problem. As in Dixit (2015, 2016), cooperation among honest suppliers alleviates free-riding in reporting. However, it also facilitates collusion in bidding by increasing the value of the collusive rent. In turn, bidding collusion facilitates cooperation in reporting by increasing the value of having honest bureaucrats, generating a trade-off. When the likelihood of corruption is high and competition is weak, collusion may be a price worth paying to curb corruption.

Pages: 26
Date: 2021
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