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Equilibrium competition, social welfare and corruption in procurement auctions.

Li, Daniel Z. and Minbo, Xu (2019) 'Equilibrium competition, social welfare and corruption in procurement auctions.', Social choice and welfare., 53 (3). pp. 443-465.

Abstract

We study the effects of corruption on equilibrium competition and social welfare in a public procurement auction. A government pays costs to invite firms to the auction, and a bureaucrat who runs the auction may request a bribe from the winning firm. We first show that, with no corruption, the bureaucrat will invite more than the socially optimal number of firms to the auction. Second, the effects of corruption on equilibrium outcomes vary across different forms of bribery. For a fixed bribe, corruption does not affect equilibrium competition, yet it does induce social welfare loss. For a proportional bribe, the bureaucrat may invite either fewer or more firms, depending on how much he weights his private interest relative to the government payoff. Finally, we show that information disclosure may consistently induce more firms to be invited, regardless of whether there is corruption.

Item Type:Article
Full text:Publisher-imposed embargo
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Status:Peer-reviewed
Publisher Web site:https://doi.org/10.1007/s00355-019-01192-8
Publisher statement:© The Author(s) 2019. This article is distributed under the terms of the Creative Commons Attribution 4.0 International License (http://creativecommons.org/licenses/by/4.0/), which permits unrestricted use, distribution, and reproduction in any medium, provided you give appropriate credit to the original author(s) and the source, provide a link to the Creative Commons license, and indicate if changes were made.
Date accepted:03 May 2019
Date deposited:03 May 2019
Date of first online publication:11 May 2019
Date first made open access:No date available

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