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International Handbook on the Economics of Corruption, Volume Two

International Handbook on the Economics of Corruption, Volume Two

Elgar original reference

Edited by Susan Rose-Ackerman and Tina Søreide

A companion volume to the International Handbook on the Economics of Corruption published in 2006, the specially commissioned papers in Volume Two present some of the best policy-oriented research in the field. They stress the institutional roots of corruption and include new research on topics ranging from corruption in regulation and procurement to vote buying and private firm payoffs.

Chapter 4: Corruption and Collusion: Strategic Complements in Procurement

Ariane Lambert-Mogiliansky

Subjects: economics and finance, economic crime and corruption, law - academic, corruption and economic crime, law and economics


Ariane Lambert-Mogiliansky 1. Introduction A mounting body of empirical evidence shows that collusion and corruption often go hand in hand in public procurement. Is this simply a coincidence, or are there strategic reasons for the association? This chapter argues that there are strong strategic complementarities between cartel agreements that seek to contain competition and corrupt deals between public agents who allocate procurement contracts and one or more firms in the cartel. The diversity of the mechanisms reviewed here testifies to the generality of the link between collusion and corruption in procurement. The aim of procurement procedures is to create competition between firms in order to reduce the cost of public works and purchases, that is, to reduce firms’ rents. The conflicting interests of the government and the firms create a stake for corruption: the procurement official may abuse his/her power to protect firms’ rents in exchange for bribes. We are not dealing with a simple bilateral relationship, however. Procurement procedures involve a number of firms that compete with each other. That competition is costly to firms; therefore, they often attempt to form a cartel to avoid competition. But cartel cooperation is difficult to sustain. Therefore, the firms may want to include the procurement official in the cartel. This, in turn, opens the way for the official to exploit the conflicting interests between the government and the firms to extract bribes. These general features are present in all procurement contexts, but the specific form of corruption depends on the context. In...

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