Corruption and Collusion in Procurement Tenders ∗ Ariane Lambert † and Konstantin Sonin ‡ April 12, 2003 Abstract There is a mounting body of evidence that collusive agreements between bidders in large multiple-object procurement tenders are often supported by a corrupt ad- ministrator. In a first-price multiple-object auction, if the auctioneer has some legal discretion to allow bidders to readjust their offers prior to the official opening, he also has incentives to extract bribes from agents in exchange for abusing this discretion. In particular, corrupt agent’s incentives to receive bribes are closely linked with that of creating a ’bidding ring’ as the agent’s discretionary power gains value when firms collude. Thus, corruption generates focal equilibria where bidders fully refrain from competing with each other. Additional flexibility of the auction format such as the possibility to submit package bids, which is often considered to be efficiency-enhancing in theoretical literature, increases the risk of collusion in the presence of corruption. Such problems are more likely to arise in tenders, where participating firms are not too close competitors. Keywords: auctions, corruption, collusion. JEL: D 44, H 57, K 42. ∗ This research has been in part financed by the NES Research Center. † CERAS Ecole Nationale des Ponts Chaussée, CNRS URA 2036, Paris and New Economic School, Moscow [email protected]. ‡ New Economic School/CEFIR, and CEPR. 1
Corruption and Collusion in Procurement Tenders
Jul 06, 2023
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