QED Working Paper Number
1524
This study investigates whether corruption differentially affects contracting through auctions and negotiations. Using data on Chinese land-market transactions, where corruption is known to be present, we first show that, on average, it exerts similar effects on transactions carried out via auctions and negotiation. However, this finding masks important heterogeneity – auctions
featuring healthy competition are less affected by corruption, and significantly less so than negotiation. We then develop a simple model of bidding under the possibility of corruption that rationalizes our findings.
Working Paper