Working Paper: CEPR ID: DP8282
Authors: Emmanuelle Auriol; Stéphane Straub; Thomas Flochel
Abstract: A model of entrepreneurial choices in an economy with a corrupt public procurement sector is built, providing predictions along two main dimensions. First, corruption is more frequent in sectors where public institutions are large buyers. Second, firms favoured with corrupt contracts enjoy extra returns, so that procurement related activities attract the best entrepreneurs. A large scale microeconomic database, including all public procurement operations over a 4 year period in Paraguay, amounting annually to approximately 6% of the country?s GDP, is then used to corroborate these predictions.
Keywords: corruption; development; procurement; rent-seeking
JEL Codes: D72; D73; H57; O5
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| corruption (D73) | exceptional purchase mechanisms (D47) |
| larger public institutions (I23) | corruption (D73) |
| exceptional purchase mechanisms (D47) | firm profitability (L21) |
| corruption (D73) | above-normal rates of return (G19) |
| exceptional purchase mechanisms (D47) | unproductive rent-seeking behaviors (D72) |
| public institutions' purchases (H57) | exceptional purchase mechanisms (D47) |
| efficient firms (D22) | engage in corrupt practices (H57) |