Auctions, Corruption and Unilateral Controls

Thierry Verdier, Olivier Compte and Ariane Lambert-Mogiliansky
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Olivier Compte: PJSE - Paris-Jourdan Sciences Economiques - ENS-PSL - École normale supérieure - Paris - PSL - Université Paris Sciences et Lettres - EHESS - École des hautes études en sciences sociales - ENPC - École nationale des ponts et chaussées - CNRS - Centre National de la Recherche Scientifique

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Abstract: We investigate th 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 opportinuty for bid readjustments 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 analyse conditions under which unilateral anticorruption controls restore price competition.

Keywords: Competition; Bid; Procurement; Corruption; Auction (search for similar items in EconPapers)
Date: 2005
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Published in RAND Journal of Economics, 2005, 36 (1), pp.1-15

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Persistent link: https://EconPapers.repec.org/RePEc:hal:journl:halshs-00754114

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