DP8282 Public Procurement and Rent-Seeking: The Case of Paraguay

Author(s): Emmanuelle Auriol, Thomas Flochel, Stéphane Straub
Publication Date: March 2011
Keyword(s): Corruption, Development, Procurement, Rent-seeking
JEL(s): D72, D73, H57, O5
Programme Areas: Industrial Organization, Development Economics
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=8282

A model of entrepreneurial choices in an economy with a corrupt public procurement sector is built, providing predictions along two main dimensions. First, corruption is more frequent in sectors where public institutions are large buyers. Second, firms favoured with corrupt contracts enjoy extra returns, so that procurement related activities attract the best entrepreneurs. A large scale microeconomic database, including all public procurement operations over a 4 year period in Paraguay, amounting annually to approximately 6% of the country?s GDP, is then used to corroborate these predictions.