I investigate the design of optimal procurement mechanisms in the presence of corruption. After contracting with the sponsor, the contractor may bribe the inspector to misrepresent quality. The mechanism affects whether bribery occurs. I discuss the cases of both fixed and variable (with the size of misrepresentation) bribes, and also uncertainty about the bribe amount. In all cases, the optimal contract curtails quality for low efficiency contractors but also for the most efficient contractors. I also present models of bribe negotiations whose reduced form coincide with the model analyzed in the paper, and discuss implementation and the effect of competition.
"Procurement Design with Corruption."
American Economic Journal: Microeconomics,
Bureaucracy; Administrative Processes in Public Organizations; Corruption
Asymmetric and Private Information; Mechanism Design
Economics of Contract: Theory
National Government Expenditures and Related Policies: Procurement
Information and Product Quality; Standardization and Compatibility