Can Auctions Reduce Corruption? Evidence from the Internal Records of a Bribe-Paying Firm |

Can Auctions Reduce Corruption? Evidence from the Internal Records of a Bribe-Paying Firm

Synopsis:

This paper uses a comprehensive set of internal bribery records from an Asian trading firm to document pervasive corruption in government procurement and evaluate different auction regimes. The average bribe was 14.7% of the product cost during the 1997-2001 period when auctions were not mandatory. To fight corruption, the country mandated best-value auctions in 2001, and strengthened them to more transparent, best-price auctions in 2004 (Best-value auctions compare bids’ weighted sums of price and subjective quality scores; best-price auctions compare only prices subject to meeting a minimum quality threshold.) The speaker finds that best-value auctions did not reduce corruption and even increased it when buyers could select which vendors to solicit. In contrast, best-price auctions decreased corruption significantly as they limited officials’ discretion in evaluating bids. Further, this paper reveals the widespread practice of secret auctions employed by corrupt officials to identify the largest bribe-payers, who were also the most efficient firms. As formal auctions became mandatory, highly corrupt officials strategically discontinued secret auctions to prevent firms from preparing for formal auctions, thereby giving contracts to less efficient firms. Overall, these results indicate that open and non-discretionary auctions can significantly reduce corruption, but at some cost to allocative efficiency.

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Speaker(s):

Anh Tran, PhD Candidate in Public Policy at Harvard University

Date:
Wednesday, 25 February 2009
Time:
12.15 p.m. - 1.30 p.m.
Venue:

Seminar Room 3-5
Level 3, Manasseh Meyer
Lee Kuan Yew School of Public Policy
469C Bukit Timah Road
Singapore 259772

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