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Procurement Auctions with Uncertainty in Corruption

Author

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  • Shinya Horie

    (Graduate School of Economics, Kobe University)

Abstract

This paper considers a situation in which a corrupt government official does not commit to using the common corruption scheme called right of first refusal in a procurement auction. Under the right of first refusal, the contractors (or bidders) participate in a sequential auction, and there is no inefficiency in project allocation. However, in cases in which the scheme is not practiced, both contractors participate in a simultaneous auction, and the disadvantaged contractor bids more aggressively than the advantaged contractor. I found that such uncertainty regarding the practice of corruption schemes can lead to inefficiency, even when the corruption scheme itself is not practiced.

Suggested Citation

  • Shinya Horie, 2017. "Procurement Auctions with Uncertainty in Corruption," Discussion Papers 1710, Graduate School of Economics, Kobe University.
    • Handle: RePEc:koe:wpaper:1710
    as

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    File URL: http://www.econ.kobe-u.ac.jp/RePEc/koe/wpaper/2017/1710.pdf
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    References listed on IDEAS

    as
    1. Lengwiler, Yvan & Wolfstetter, Elmar, 2000. "Auctions and corruption," SFB 373 Discussion Papers 2000,40, Humboldt University of Berlin, Interdisciplinary Research Project 373: Quantification and Simulation of Economic Processes.
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    5. Burguet Roberto & Perry Martin K, 2007. "Bribery and Favoritism by Auctioneers in Sealed-Bid Auctions," The B.E. Journal of Theoretical Economics, De Gruyter, vol. 7(1), pages 1-27, June.
    6. Lengwiler, Yvan & Wolfstetter, Elmar G., 2005. "Bid Rigging. An Analysis of Corruption in Auctions," Discussion Paper Series of SFB/TR 15 Governance and the Efficiency of Economic Systems 39, Free University of Berlin, Humboldt University of Berlin, University of Bonn, University of Mannheim, University of Munich.
    7. Ingraham Allan T, 2005. "A Test for Collusion between a Bidder and an Auctioneer in Sealed-Bid Auctions," The B.E. Journal of Economic Analysis & Policy, De Gruyter, vol. 4(1), pages 1-32, September.
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    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    Procurement Auctions; Corruption; Right of first refusal;
    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
    • L14 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Transactional Relationships; Contracts and Reputation

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