Corruption and Renegotiation in Procurement
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Publisher
RedNIE Red Nacional de Investigadores en Economía
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.
Description
Keywords
Corruption, Corrupción, Contratos, Contracts