Working Paper: CEPR ID: DP2434
Authors: Olivier Compte; Ariane Lambert-Mogiliansky; Thierry Verdier
Abstract: This paper investigates the effect of corruption on competition in government procurement auctions. Our assumption is that the bureaucrat (i.e. the agent that administers the market), if corrupt, may provide a favour in exchange for a bribe. The favour we consider in most of our analysis is the opportunity to readjust a bid. We show that a key effect of corruption is to facilitate collusion in price between firms. This can result in high public spending and inefficient allocation. We discuss the effect of other forms of bureaucratic discretion in the procurement process and analyse conditions under which unilateral anti-corruption controls may restore price competition.
Keywords: corruption; collusion; auction procedures; controls
JEL Codes: D44; D73; K42; L12
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| corruption (D73) | collusion (D74) |
| corruption (D73) | competition (L13) |
| bureaucratic discretion (D73) | competition (L13) |
| bureaucratic discretion (D73) | collusion (D74) |
| anti-corruption controls (H57) | collusion (D74) |
| anti-corruption controls (H57) | competition (L13) |
| controls on efficient firms (D22) | bids (D44) |
| bureaucratic discretion (D73) | auction outcomes (D44) |