« Accountability in Procurement » - ETA mémo n°10

Read the new mémo (n°10) edited by ETA-Economics of Transparency and Accountability

Accountability in Procurement

By Bernard Caillaud and Ariane Lambert-Mogiliansky.

In this paper the authors address the issue of corruption in terms of favoritism at the design stage of a complex procurement auction. The risk of corruption arises because the community has preferences over the projects it procures but lacks the competence to translate those preferences into an operational technical specification. This task is delegated to a public officer who may collude with one of the firms and let that firm’s interest determine the design of the project. They investigate the value of engaging the competing firm in a simple accountability mechanism. They find that significant improvement can be achieved compared with accountability based on random challenge. The level of penalty needed to fully deter corruption is drastically reduced and independent of the complexity of the project. Instead, it depends on the degree of differentiation within the industry. Below the threshold, corruption occurs with some positive probability. Moreover corruption under alert based accountability tends to move the equilibrium specification toward more standard design when the community favors standardization. The investigated mechanism uses minimal information and commitment ability from the part of the community. And since it is played before the official tender, it can be implemented at minimal cost.

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