Procurement auctions with ex-ante endogenous bribery |
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| Institution: | 1. School of Economics and Business Administration, Chongqing University, Chongqing 400030, China;2. Chongqing Key Laboratory of Logistics, Chongqing University, Chongqing 400030, China;1. Graduate School of Advanced Integration Science, Chiba University, Chiba 263-8522, Japan;2. NSM Research Unit for Functional Biomaterials, Roskilde University, Roskilde DK-4000, Denmark;3. Department of Chemistry, The University of British Columbia, Vancouver, BC V6T, 1Z1, Canada;1. School of Business, University of the Sunshine Coast, Maroochydore DC, QLD 4558, Australia;2. Shanghai Lixin University of Commerce, 2800 Wenxiang Road, Shanghai, China;3. School of Business, James Cook University, Townsville, QLD 4811, Australia;1. Key Laboratory for Anisotropy and Texture of Materials (Ministry of Education), School of Material Science and Engineering, Northeastern University, Shenyang 110819, China;2. State Key Laboratory of Powder Metallurgy, Central South University, Changsha, Hunan 410083, China;3. State Key Laboratory of Solidification Processing, Northwestern Polytechnical University, Xi''an 710072, China;4. Northwest Institute for Non-ferrous Metal Research, Shaanxi Key Laboratory of Biomedical Metal Materials, Xi''an 710016, China |
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| Abstract: | Corruption is a prevalent phenomenon in various procurement auctions. This paper explores a pattern of bribery between an auctioneer and a favored bidder, and also investigates the regulation scheme of buyer. In the model, the favored bidder is allowed to submit two bids simultaneously with the advantageous one to be announced; auctioneer decides the share of the difference between two bids which is the bribe transfer. The analysis shows that, the favored bidder does not participate in the corruption if his cost exceeds a threshold; otherwise he submits two bids whose difference is decreasing in the share. The corruption benefits both the auctioneer and the favored bidder but harms other bidders. The bribery endogenously leads to allocation inefficiency with a probability decreasing in the bribe share. Specifically, with two uniformly distributed bidders, we examine how the auctioneer optimizes the bribe share and how the buyer regulates the corruption. We find that, by driving the auctioneer to charge a higher bribe share that is less attractive for the favored bidder, severer regulation tends to reduce the probability of corruption. A buyer who adopts extremely severe regulation can exclude the corruption and achieve maximum social welfare, while a buyer who aims to maximize his own profit should tolerate some degree of the corruption. |
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