Accountability to Contain Corruption in Procurement Tenders

Abstract

This paper addresses the issue of favoritism at the design stage of a complex procurement auction. A community of citizens wants to procure a project and lacks the knowledge and the ability to translate its preferences into operational technical specifications. This task is delegated to a public officer who may collude with one of the firms at the design stage of the procurement auction in exchange of a bribe. We investigate two simple accountability mechanisms: a random challenge mechanism (RCA) and an alert-based mechanism (ABA), that require justifying one aspect of the technical decision drawn randomly (RCA) or determined by the competitors (ABA). Relying on competitors enables the community to deter favoritism significantly more easily than by relying only on random challenges and the level of penalty needed to fully deter corruption is independent of the complexity of the project and depends on the degree of differentiation within the industry. In an illustrative example, we study the patterns of favoritism when corruption occurs under ABA and compare them with the patterns in the random challenge mechanism.