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Economics of Governance

Erschienen in:

02.06.2023 | Original Paper

Incompetence and corruption in procurement auctions

verfasst von: Krishnendu Ghosh Dastidar, Sonakshi Jain

Erschienen in: Economics of Governance | Ausgabe 4/2023

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Abstract

This paper analyzes the impact of incompetence and corruption in procurements. The government conducts a procurement auction where a firm that quotes the lowest bid wins the contract to construct a public good (subject to the fulfillment of the minimum quality requirement). Incompetence leads to measurement errors. There is also corruption in the system: if the measured quality falls short of the minimum stipulated level, the firm can pay a bribe to inflate the reported quality. We show that higher levels of corruption parameters unambiguously reduce the actual quality produced and the expected welfare. The effects of greater incompetence are more complicated. We show greater incompetence may lead to an increase in both equilibrium quality and welfare. This is counter-intuitive and goes against conventional wisdom. We also demonstrate that the winning firm chooses a quality that is strictly lower than the welfare-maximizing quality.

Vorheriger Artikel Corruption for competence

Nächster Artikel Alternative intervention mechanisms in rent-seeking contests

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See ${<}{<}$https://www.oecd.org/gov/public-procurement/${>}{>}$.

See Mishra (2015) and Qadeer (2019).

While we realise that in real life incompetence has several dimensions, in this paper we restrict attention to one specific aspect of incompetence: inability to judge quality properly (measurement errors).

On August 14, 2018, a bridge collapsed in Italy where there is a suspicion on the quality of the structure, which resulted in fatalities. See ${<}{<}$https://www.nytimes.com/2018/08/14/world/europe/italy-genoa-bridge-collapse.html${>}{>}$

To assess a health project in Orissa (a state in India), civil engineers visited 55 project hospitals and found that 93 percent of them had major problems: severely leaking roofs; crumbling ceilings; molding walls; and nonfunctional water, sewage, or electrical systems financed under the project. Yet, the construction management consultants who supervised the work, certified that 38 of these hospitals were complete and in line with project specifications. See ${<}{<}$https://www.brookings.edu/wp-content/uploads/2016/07/chapter-one_-results-not-receipts-9781933286990.pdf${>}{>}$

The ‘National Employability Report for Engineers 2019’ put out by a job assessment platform Aspiring Minds, has shown that over 80% of engineers in India are unfit to take up any job in the knowledge economy. See ${<}{<}$https://www.businessinsider.in/engineers-in-india-lack-the-right-job-skills-including-artificial-intelligence-and-machine-learning-report/articleshow/68516807.cms${>}{>}$

Amidst the tens of thousands of management graduates churned out by the 5,500 Business schools in India, only 7 per cent turn out to be employable, says a study conducted by ASSOCHAM. See ${<}{<}$https://www.indiatoday.in/education-today/featurephilia/story/mba-education-problems-328626-2016-07-11${>}{>}$

https://economictimes.indiatimes.com/jobs/only-6-of-those-passing-out-of-indias-engineering-colleges-are-fit-for-a-job/articleshow/64446292.cms?from=mdr.

In fact, Alali (2019) argues that incompetence and corruption mean the same thing to our tax dollars. To taxpayer finances, a $1 million loss due to corruption is equivalent to $1 million loss due to incompetence.

See the following: https://www.usnews.com/news/best-countries/slideshows/top-10-countries-with-a-skilled-labor-force-ranked-by-perceptionhttps://www.weforum.org/agenda/2019/02/least-corrupt-countries-transparency-international-2018/https://www.usnews.com/news/best-countries/slideshows/top-10-countries-for-technological-expertise-ranked-by-perception?slide=9.

See https://www.news18.com/photogallery/india/most-corrupt-states-in-india-2019-rajasthan-tops-delhi-odisha-among-least-2405167-6.html.

See ${<}{<}$https://freepolicybriefs.org/2019/12/02/buyer-competence-and-procurement-renegotiations/${>}{>}$

Section 3.4 provides the details of expected welfare.

See Krishna (2010).

Burati et al. (1992) showed that deviation in quality checks accounts for an average of 12.4% of the total project costs.

The validity of any biomedical study is potentially affected by measurement error or misclassification. It can affect different variables included in a statistical analysis, such as the exposure, the outcome, and can result in an overestimation as well as in an underestimation of the relation under investigation (see Groenwold and Dekkers 2020). In an interesting exercise, De Los Reyes (2011) showed that discrepancies in the reports of child and adolescent psychopathology and related constructs can help better understand the causes and treatments for child and adolescent psychopathology.

Marjit et al. (2000) analyse a scenario where a supervisor is in charge of enforcing a law. If a criminal is apprehended, the law-enforcing agent may not report and accept a bribe, or may report and receive a reward. But, in either case, the enforcing agent has an incentive to pamper crime. In a complete information case, such equilibrium is likely to be the outcome and crime cannot be controlled. The paper shows that the law enforcer, having incomplete information about the type of a criminal, may take certain actions that will prevent crime to some extent. That is, a relatively ‘less-informed’ law-enforcing official may be better better at preventing a crime.

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Titel: Incompetence and corruption in procurement auctions
verfasst von: Krishnendu Ghosh Dastidar
Sonakshi Jain
Publikationsdatum: 02.06.2023
Verlag: Springer Berlin Heidelberg
Erschienen in: Economics of Governance / Ausgabe 4/2023
Print ISSN: 1435-6104
Elektronische ISSN: 1435-8131
DOI: https://doi.org/10.1007/s10101-023-00296-3

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