Li, Daniel and Xu, Minbo (2017) 'Equilibrium competition, social welfare and corruption in procurement auctions.', Working Paper. Durham University Business School, Durham.
Abstract
We study the e¤ects of corruption on equilibrium competition and social welfare in a public procurement auction. In our model, rms are invited to the auction at positive costs, and a bureaucrat who runs the auction on behalf of a government may request a bribe from the winning rm. We rst present the over-invitation re- sults in the absence of corruption, in which more than a socially optimal number of rms will be invited. Second, we show that the e¤ects of corruption on equilibrium outcomes vary across di¤erent forms of bribery. For a xed bribe, corruption has no e¤ect on equilibrium competition, although it does induce social welfare loss. For a proportional bribe, a corrupt bureaucrat may invite fewer or more rms to the auction depending on how much he weights his personal interest relative to the government payo¤. Thus, corruption may result in either Pareto-improving or dete- riorating allocations. Finally, we show that information disclosure may consistently induce more rms to be invited, regardless of whether there is corruption.
Item Type: | Monograph (Working Paper) |
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Full text: | (VoR) Version of Record Download PDF (366Kb) |
Status: | Peer-reviewed |
Publisher Web site: | https://www.dur.ac.uk/business/research/economics/working-papers/ |
Date accepted: | No date available |
Date deposited: | 31 May 2019 |
Date of first online publication: | 2017 |
Date first made open access: | No date available |
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