Competitive Procurement with Corruption

We study competitive procurement administered by a corrupt agent who is willing to manipulate his evaluation of contract proposals in exchange for bribes. With complete information and no corruption, the efficient firm will win the contract for sure. If the agent is corrupt and has large manipulation power, however, bribery makes it costly for the efficient firm to secure a sure win, so in equilibrium the efficient firm loses the contract with positive probability. The optimal scoring rule for the buyer deemphasizes quality relative to price and does not fully handicap, and may even favor, the efficient firm.

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