DP16481 Cartels and Bribes

Author(s): Roberto Burguet, Elisabetta Iossa, Giancarlo Spagnolo
Publication Date: August 2021
Keyword(s): Bribes, cartels, Corruption, free-riding, Whistle-Blowing
JEL(s): D44, D73, H57, L41
Programme Areas: Public Economics, Industrial Organization
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=16481

We study the relationship between collusion and corruption in a stylized model of repeated procurement where the cost of reporting corrupt bureaucrats gives rise to a free riding problem. Cooperation among honest suppliers alleviates free-riding in reporting. However, it also facilitates collusion in bidding by increasing the value of the collusive rent. In turn, bidding collusion facilitates cooperation in reporting by increasing the value of having honest bureaucrats, generating a trade-off between collusion and corruption.