How to detect corruption in public procurement auctions with reserve prices?

Elena Podkolzina presented a joint research with Sümeyra Atmaca and Koen Schoors "Corrupt Reserve Prices" on CInSt research seminar on 12th March.

Corruption can cause different problems in the public procurement:

1. effect on competition: auction competition is lower if a corrupt procurer-seller pair is involved
2. winning probability: sellers that constitute a corrupt pair with a procurer are more likely to win auctions of this procurer
3. effect on outcome: auctions won by a corrupt procurer-seller pair exhibit higher contract prices.

Therefore, it is important to capture corrupt favoring in auctions. The authors find that the odds of winning is 18.3% higher for overpricing pairs than pairs that do not manipulate reserve prices and the marginal effect, evaluated at the means of covariates, is 2 percent points. Restrictions are the main instrument to transform high reserve prices in high contract prices. Index based on corrupt pairs distribution is positively correlated with other measures of corruption.

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