Procurement Auctions under Quality Manipulation Corruption

Abstract

In procurement, quality manipulation corruption arises when the agent tasked with quality evaluation exaggerates the quality of a corrupt firm. If an inefficient firm is favored by the agent, the buyer can adjust the procurement mechanism such that the corruption rent of the inefficient firm erodes the technological rent of the efficient firm; however, doing so may require procuring the project at an undesirable quality level. To resolve this trade-off between corruption deterrence and quality distortion, unlike standard results in the literature, the buyer may overstate her preference for quality, and the dominance of scoring auctions over minimum-quality auctions disappears.