Auctions, Corruption and Unilateral Controls

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.
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Journal articles
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Submitted on : Tuesday, November 20, 2012 - 8:43:47 AM
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Thierry Verdier, Olivier Compte, Ariane Lambert-Mogiliansky. Auctions, Corruption and Unilateral Controls. RAND Journal of Economics, Wiley, 2005, 36 (1), pp.1-15. ⟨halshs-00754114⟩

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