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Corruption and Renegotiation in Procurement

Author

Listed:
  • Leandro Arozamena

    (UTDT-CONICET)

  • Juan José Ganuza

    (Universitat Pompeu Fabra)

  • Federico Weinschelbaum

    (UTDT-CONICET)

Abstract

A sponsor –e.g. a government agency– uses a procurement auction to select a supplier who will be in charge of the execution of a contract. That contract is incomplete: it may be renegotiated once the auction’s winner has been chosen. We examine a setting where one firm may bribe the agent in charge of monitoring contract execution so that the former is treated preferentially if renegotiation actually occurs. If a bribe is accepted, the corrupt firm will be more aggressive at the initial auction and thus win with a larger probability. We show that the equilibrium probability of corruption is larger when the initial contract is less complete, and when the corrupt firm’s cost is more likely to be similar to her rivals’. In addition, we examine how this influences the sponsor’s incentives when designing the initial contract.

Suggested Citation

  • Leandro Arozamena & Juan José Ganuza & Federico Weinschelbaum, 2024. "Corruption and Renegotiation in Procurement," Working Papers 334, Red Nacional de Investigadores en Economía (RedNIE).
    • Handle: RePEc:aoz:wpaper:334
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    File URL: https://rednie.eco.unc.edu.ar/files/DT/334.pdf
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    More about this item

    Keywords

    Auctions; Cost overruns; Procurement; Renegotiation; Corruption;
    All these keywords.

    JEL classification:

    • C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games
    • D44 - Microeconomics - - Market Structure, Pricing, and Design - - - Auctions
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design

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