We consider a procurement problem in which the procurement agent is supposed to allocate the realization of a project according to a competitive mechanism that values bids in terms of the proposed price and quality. Potential bidders have private information about their production costs. Since the procurement agent is also in charge of verifying delivered quality, in exchange for a bribe, he can allow an arbitrary …rm to be awarded the realization of the project and to produce a quality level lower than the announced. We compute equilibrium corruption and we study the impact on corruption of the competitiveness of the environment, and in particular of: i) an increase in the number of potential suppliers of the good or service to be procured, and ii) an increase of competition in the market for procurement agents. We identify the e¤ects that in ‡uence equilibrium corruption and show that, contrary to conventional wisdom, corruption may well be increasing in competition.

This paper analyzes the problem of abnormally low tenders in the procurement process. Limited liability causes¯rms in a bad¯nancial situation to bid more aggressively than nancially healthy¯rms in the procurement auction. Therefore, it is likely that the winning¯rm is a¯rm in¯nancial di±culties with a high risk of bankruptcy. The paper focuses on the regulatory practice of surety bonds to face this problem. We show that the use of surety bonds reduces and sometimes eliminates the problem of abnormally low tenders. We provide a characterization of the optimal surety bond and show that the US practice of requiring that surety bonds cover over 100% of the contract price can be excessive, implying overinsurance to the problem of abnormally low tenders.

Many of the attributes that make a good "socially responsible" (SR) are credence attributes that cannot be learned by consumers either through search or experience. Consumers, then, use for their purchasing decisions "noisy" information about these attributes obtained from potentially contradictory channels (media, advertisement, NGOs) . In this paper we model such informational framework and show the positive relationship between the accuracy of the information transmitted to consumers and corporate social responsibility. We also show that a firm may be tempted to add noise to the information channel (through lobbying of the media), which might reduce the supply of the SR attributes and even harm the firm itself (with lower profits). It might then be profitable to the firm to commit ex ante to not manipulate the information regarding the firm's business practices (e.g., with a partnership with an NGO). Finally, we extend our model to a competition framework endogenizing the number of firms active in the SR segment. We show both that in more transparent markets a larger number of firms will be SR, and that in a market with more intense competition, a higher degree of transparency is required in order to sustain a given number of SR firms.

In the presence of cost uncertainty, limited liability introduces the possibility of default in procurement with its associated bankruptcy costs. When …nancial soundness is not perfectly observable, we show that incentive compatibility implies that …nancially less sound contractors are selected with higher probability in any feasible mechanism. Informational rents are associated with unsound …nancial situations. By selecting the …nancially weakest contractor, stronger price competition (auctions) may not only increase the probability of default but also expected rents. Thus, weak conditions are su¢ cient for auctions to be suboptimal. In particular, we show that pooling …rms with higher assets may reduce the cost of procurement even when default is costless for the sponsor.